Insurance roars back to life in Apr, riding on LIC growth

AFTER suffering a 6% decline in first premium income (FPI) in fiscal 2008-09, the life insurance industry is back on the growth path. The first month of the current financial year (2009-10) saw a 29% growth in FPI, thanks to Life Insurance Corporation (LIC).
    LIC, whose FPI dipped 10% during the previous fiscal, recorded a 69% growth during April 2009. However, private players, which witnessed a 1% growth in first premium during 2008-09, saw a 3% fall in the same month.
    Data compiled by Irda showed that LIC managed to increase its marketshare by as much as 14% during April 2009. The public sector behemoth managed to corner about 59% marketshare during the period under review against 45% in the corresponding period previous fiscal. On the other hand, private insurers' marketshare slipped to 41% from 55%.
    According to a senior LIC official, the rise in premium income was mainly attributed to the thrust on selling more of conventional products as well as the stock market boom in April 2009, which made unitlinked policies popular. "The stock market performed better during April 2009 than in April 2008, hence unit-linked policies sold more," said the official.
    Interestingly, the single premium adjusted FPI figures for April 2009 are yet to show growth. Adjusted FPI for the life insurance segment witnessed a 14% decline while for private players, there was a 26% drop. LIC, however, managed to show a marginal 4% growth during the period.
    Adjusted single premium considers just 10% of single premium policies and FPI for individual non-single policies. Going by this definition, Max New York Life managed the highest premium income among private players during April 2009, followed by SBI Life and ICICI Prudential. According to this method of calculating premiums, the private players have lost about 8% marketshare to LIC during the first month of the current fiscal. Marketshare of all private players stood at 52.6% during April 2009 against 60.9% in the previous corresponding period.
    Figures show LIC managed a six-fold increase in FPI group non-single policies during April 2009 while group single premiums rose 3.6%. Individual single premium registered a 16% rise during the period.

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First-ever insurance IPO soon from Rel Life

RELIANCE Capital is planning the first-ever initial public offer (IPO) by an insurance company in India by taking its subsidiary — Reliance Life Insurance public. The company is looking to divest up to 26% in its insurance arm through an IPO as well as by inducting a strategic investor, a person familiar with the situation told ET.

    "Reliance Capital is looking to divest 10-26% in its life insurance arm. This will be through a placement with a strategic investor as well by selling shares to the public. There will be a mix of a fresh issue of shares as well as sale of shares by the parent company. This way, funds will be infused both into the life insurance business and Reliance Capital. The process will be finalised in the next three-four months," said this person. When contacted by ET, Reliance Capital CEO Sam Ghosh said that the company was evaluating several options.
    Current government guidelines allow a 26% foreign investment in the insurance sector and it is likely that the FDI limit in this sector will be hiked to 49% under the new government. While most big insurance companies in India are joint ventures between foreign insurance majors and Indian partners, Reliance Capital had so far chosen to go solo. But with the market picking up and valuations on the rise, the company is now looking at the option of bringing a foreign partner as well as going to bourses to raise funds.
    The person familiar with the development said Reliance Life Insurance would be valued well in excess of Rs 12,000 crore though this could not be independently ascertained.
    Among the private insurance companies, the Reliance Capital subsidiary is ranked fourth in terms of total premium behind ICICI, SBI Life and Bajaj Allianz, and third in terms of weighted premium. It has increased its market share from 8.1% in FY08 to 10.3% in FY09.
    gaurie.mishra@timesgroup.com 

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Insurers in for lax equity cap

IRDA BLESSING

WITH equity markets showing some signs of recovery, the Insurance Regulatory Development Authority (Irda) is vetting a proposal to allow all insurers raise their stakes in blue-chip companies and stateowned banks.
    At present, the regulator allows insurers to invest only up to 10% of their portfolio in shares of a single company. State-owned Life Insurance Corporation, flush with funds, has been pitching for hiking this limit to 20% to ensure that it continues to invest in blue-chip firms .
    "We have asked LIC to furnish us with details of their exposure both in equity and debt instruments to take a final view. A relaxation, if any, in the investment norms will be done for all insurers and not restricted to LIC," Irda chairman J Hari Narayan told ET.
    According to Mr Narayan, LIC has also sought an expansion in the window for investments in infrastructure and a higher exposure in state-owned banks. The insurance regulator plans to do a risk analysis on the status of stressed assets of banks before taking a final view.
    Incidentally, LIC owns 26.32% in Corporation Bank, but the investment was made a few years ago when it enjoyed a special dispensation on investments. India's largest insurer's stake in five state-owned banks, including SBI, Punjab National Bank, Canara Bank, Bank of Baroda and Bank of India, is below 10%. Besides, it also has stakes in many blue-chip companies like ITC, L&T, ACC and Cipla, among others.
    Industry experts said LIC picked up huge stakes in companies because it had developed products with a high interest rate element. Therefore, the corporation invested in shares that offered high returns to meet these guarantees.
    But LIC has been acting as a counterweight, buying shares in a volatile market when all others, including FIIs, were on a selling spree. A higher cap will enable LIC to take advantage of bargain prices and provide a balance to the markets.
    However, unlike LIC, which is flush with policyholder funds, private insurers may not be able to raise their stakes in blue chips substantially if the cap on equity exposure is raised, said an analyst.
    For starters, Irda changed investment norms last August and allowed LIC and all private sector companies to invest up to 10% of outstanding shares, or 10% of the fund size(whichever is lower), in shares of a single company. The aim of the conservative limit was to check over-exposure by an insurer in any single company.
    LIC resisted the move as it meant pruning stakes in companies where the ceiling had been breached. The regulator later clarified that the new investment norm will apply only to future investments.
    "From a risk management perspective, insurers holding stakes in a single investee company need not increase the risk. One needs to look at what proportion of the investor company assets are parked in any one company," said the chief financial officer of an insurance firm who did not want to be named.

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Insurance industry sees change of guard

THE old order has changed completely in the life insurance industry. After Deepak Satwalekar of HDFC Standard Life and Shikha Sharma of ICICI Prudential stepped down, markets are agog with anticipation on who will be the next thought leaders. SBI Life's MD US Roy's term ends in July, although an extension is not ruled out. Kamesh Goyal, MD, Bajaj Allianz Life, though just 42, is among the veterans who has been around since the company's inception. Grapevine has it that he may move to an international position with Allianz. Gaurang Shah, MD of Kotak Life, was planning to return to the parent bank, but may stay back, given the current economic turmoil. Following these imminent changes at the top, P Nandagopal — who is set to join Bank of Baroda-Legal and General JV — and Rajesh Relan of Metlife are the only ones left from the old school.
PERFECT TIMING
IN HER career with ICICI Bank, Chanda Kochhar has built up a reputation for time management. On her first day, she gave back-to-back interviews to various mediapersons, including those from regional newspapers and television channels. Yet, she found a way to address all employees about her priorities. Instead of a general e-mail, the bank arranged for a direct-tohome broadcast using the services of a DTH company, and a special programme containing her address was aired to employees across the country.
VIRTUE OUT OF NECESSITY
RBI'S decision to introduce interest calculation on daily balances in savings bank accounts had come as a pleasant surprise in its Monetary Policy. The earlier norm of calculating interest rates on the minimum balance maintained between the 10th and last day of every month had been in vogue for 69 years. But, a letter to ET claims that there was compulsion behind this munificence. A financial consultant from Indore, Mahesh Natani, says that RBI's move was preceded by a public interest litigation (PIL) filed by him along with a friend Ajit Jain. He claims RBI took up the matter after show cause notices were issued to it and the ministry of finance by the Madhya Pradesh High Court.
TOGETHER FOR KEEPS
ALTHOUGH IDBI's chairman Yogesh Agarwal has been on a hiring spree, recruiting executives from his erstwhile employer State Bank of India, he is not keen on letting his own senior executives go. Recently, at an offshore meeting of senior executives, the chairman made it very clear that he plans to retain both his DMDs—Jitendra Balakrishnan (or JB as he is popularly known) and OV Bundellu — as consultants when they retire. While JB is due to retire this month, Bundellu has about year to go. However, it is not clear whether JB will stay, considering that he has other offers on hand.
PASSING THE BATON
FOLLOWING the transfers of EDs Bhargav Das Gupta and NS Kannan from ICICI Prudential Life, their responsibilities have been redistributed among the insurer's senior management. Most of the responsibilities of Mr Kannan, who has moved to ICICI Bank as CFO, have been taken over by Puneet Nanda, chief investment officer. In ICICI Lombard General Insurance also there is no move to immediately appoint an ED in place of Vishaka Mulye, who has moved to ICICI Venture.
NEW MAN IN
ONE of the top two vacant slots at National Housing Bank is set to be occupied by Prabal Sen, currently chief GM at Reserve Bank of India. Sen is set to take over from RV Verma as executive director who retired recently. Meanwhile, NHB is looking for a new chairman in place of S Sridhar, chairman of Central Bank of India.

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Non-life insurers told to check expense ratio

MOVE AIMS AT ENSURING COS' ABILITY TO PAY CLAIMS TO POLICYHOLDERS DURING SLOWDOWN

 THE insurance regulator has directed a clutch of non-life companies, including Royal Sundaram Alliance Insurance, HDFC Ergo General Insurance, Reliance General Insurance Company and Tata AIG General Insurance, to rein in their expense ratio, a senior official said .
    The Insurance Regulatory Development Authority's (IRDA) move is meant to ensure that these companies have the ability to pay claims to policyholders even when there is a slowdown in new business growth.
    Expense ratio, in insurance parlance, is the proportion of premium used to pay all the costs of acquiring, writing and servicing insurance and reinsurance. "Non-life insurers need to keep a check on their expense ratio to ensure that solvency is not jeopardised at any time," said R Kannan, member actuary, IRDA.
    The regulator's concerns need to be viewed against the backdrop of a slowdown in business growth. The total premium income from non-life business grew by around 9% to Rs 30,601crore in FY09 compared with Rs 28,051 crore in FY08. Premium income is expected to grow at fast pace only when the economy turns around.
    As per insurance regulation norms, non-life insurance firms are required to maintain management expenses to premium ratio of 20%. The industry average is 20-26%. But some of these companies have breached the average, said an official.
    The regulator took a lenient view
    of this issue in the past, as companies argued that they were in a start-up phase. Some insurers have low expense ratios due to economies of scale. They can leverage spends on advertising and brands that attract customers, say experts.
    The IRDA is concerned as a high expense ratio could impact the solvency — the ability to pay a claim — of an insurer.
    The bottom line of non-life companies has been hit due to the price war that has seen premium rates come down by as much as 80% in some businesses.
    "The IRDA's priority is to ensure health of an insurance company. The regulator cannot ask companies to increase rates or reduce claim payments and therefore, the obvious solution is to ask them to prune," said an industry official.
    Sources said that the regulator has been turning down proposals on granting liberal remuneration packages to new CEOs. Now, given the surge in costs, the regulator is also likely to propose a freeze on the salaries of incumbent CEOs. "The regulator appears to be taking a clue from global events, where regulators are looking at the health of insurance companies," said an industry official. FOR THE PEOPLE
Expense ratio is the proportion of premium used to pay all the costs of acquiring, writing and servicing insurance and reinsurance IRDA is concerned as high expense ratio could impact the solvency, the ability to pay a claim, of an insurer

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Home COVER

Buying your dream home and have tied up with a bank for a loan? Don't forget to take an insurance policy on the loan to guard yourself against eventualities such as death or permanent disability, says
Lisa Mary Thomson

THEY say that speed kills. However, for 30-year-old Ajay Mallik and his wife Preity, speed added zest to life. Be it the promptness with which they got their promotions at work, the swiftness with which they bought their first home or literally the speed at which they zipped past on the highway — this young couple was on a constant challenge to outdo themselves and others. Till the day, a car pile-up on the highway left Ajay a quadriplegic for life.
    Faced with the fact that Ajay would perhaps never be able to return to his high paying executive's job, Preity went out of her mind worrying about how they were going to meet expenses, not just the medical bills but also the installments on the Rs 70-lakh loan they had taken for their dream home. However, a part of the burden was lifted off her shoulders, when she looked through Ajay's papers. Ajay had been sensible enough to take a home loan insurance policy, which would take care of the outstanding amount in the case of a permanent disability.
    In fact, this little-known home loan insurance policy could go a long way in easing you of the worries that could ensue if the earning member of your family meets with a sudden death or suffers from permanent disability. To help you make up your mind, SundayET comes to your aid with a ready reckoner on taking a home loan insurance policy.
LOOKING BEYOND THE LOAN
It may appear as though death, permanent disability and critical illness are the predominant eventualities that you need to guard yourself against if you have huge liabilities on your plate like a home loan. In fact, most companies have drawn up a fairly comprehensive list of the critical illnesses that are covered under the policy. Lately, however, many of them have also made this policy applicable for individuals who have become the victims of retrenchment. While this has emerged as the silver lining in the dark clouds for many of those who lost their jobs during the slowdown, it comes with certain clauses. "In case of loss of employment, the equated monthly installments are aggregated and a cap of three EMIs applies," says Neelesh Garg, director of ICICI Lombard. Meanwhile, in certain other policies, the attempt is to offer a comprehensive policy where the coverage goes beyond the loan and also includes damages to the structure and contents of the home due to fire, earthquakes and even burglary or theft.
PREMIUM PLANS
Another significant benefit is that while the loan may be for a large sum, the premiums are quite reasonable and affordable. In fact, many experts feel that most home insurance policies are very much like term plans as they offer low premium and also do not return any premium if the person outlives the policy without making any claims. Ajay Bimbhet, managing director, Royal Sundaram Alliance Insurance says, "This is not an investment product and is purely a risk product. So the person shall not get back the money paid towards premium under any circumstances." However, if a person dies halfway through a reducing balance policy, then in most cases the company will only return the outstanding amount to the bank. However, there are a few insurance companies which provide full coverage and pay the outstanding amount and return the rest to the nominee. Moreover, if you choose to foreclose your loan, then most policies give you a refund depending on the terms and conditions. "In case you decide to pre-pay your loan, the cover would continue on basis of the loan schedule or surrender value of the policy," says Anil Singh, head – actuary and product development, Bajaj Allianz Life Insurance.
    Most companies also give you the option of either paying premium upfront, as a single premium or through annual premium. However, HDFC Ergo General Insurance also has a offering for those who are struggling to paying their premiums. According to Mukesh Kumar – head, retail business group at HDFC Ergo, "While premium is charged up-front, the insured can opt for finance for the insurance premium too from the financing company." That apart, premiums are calculated on a range of factors, starting from age of the person taking the loan, the loan amount, interest on the loan to the tenure of the policy. If the policy also involves a comprehensive cover for the home, then it would depend on the size of the home, its location and the nature of construction.
THE ART OF CHOOSING
It is important to remember that may insurance companies offer their products only for loans, which are taken from specific banks. For instance, the policies issued by HDFC Ergo and ICICI Lombard only cover loans which are taken from HDFC Bank and ICICI Bank, respectively. Moreover, if a person is self-employed then loss of job may not be covered in the policy.
    When it comes to choosing between policies, you would need to consider premium rates, whether the cover is adequate enough and if includes the necessary requirements. You also need to remember to review the sum insured every year so that you do not end up paying a higher premium than what is actually required.
WEIGH THE BENEFITS

• Insurance Co. pays outstanding loan amount in cases of death, permanent disability, critical illnesses & even job loss

• Low and affordable premiums

• No premium returned if person outlives policy

• Includes provisions for foreclosure & prepayment of loans

• Occasionally includes comprehensive coverage for structure and contents of home

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