Somrup Bose Ray

Insurance NewsBytes www.indiainsuranceresearch.com Insurance NewsBytes Volume 58 March 2011 INSIDE THIS ISSUE We are pleased to circulate our monthly newsletter (March 20111) covering developments in the life insurance market. NEW BUSINESS DOWN BY 14% IN JANUARY…… The industry witnessed many developments during the month. The union budget has proposed to move Insurance Laws (Amendment) Bill, Pension Fund Regulatory and Development Authority (PFRDA) Bill, LIC Amendment Bill. 2 ECONOMIC SURVEY 2010‐ 11…… PNB PRINCIPAL INSURANCE BROKING LICENSE CANCELLED….. IRDA’S OUTSOURCING LAW ON CORE ACTIVITY HAMPERING BPOs……. KOTAK LIFE, SB LIFEI, TATA AIG LIFE, AVIVA LIFE INSURANCE LAUNCHED NEW PLANS…. IDBI FEDERAL LIFE SHAREHOLDERS INFUSE CAPITAL….. ALLIANZ EARNINGS UP BY 11% IN 4TH QUARTER…. PRUDENRIAL POSTS PROFIT….. 3 3 4 On traditional insurance plans, the finance minister has increased the amount on which service tax is levied. Earlier, the customer paid service tax on 1 per cent of the premium. From the next financial year, this will go up to 1.5 per cent. All unit‐linked insurance plan (ULIP) charges would be under the ambit of service tax. The government has proposed imposition of 5% service tax on treatment in private hospitals, paid either by individuals, insurance companies or firms. The service tax will be applicable to diagnostic tests of all kinds. All these changes will lead to higher premium for the policyholders. The Economic Survey 2010‐11 has emphasized on strong disclosure norms from insurers who are planning to tap the capital market through initial public offers (IPOs). “Several insurance companies will be completing 10 years of operations, after which they may be allowed by the regulator to go in for an IPO. It is essential that the investors be made fully aware of the financial performance, company profile, financial position, risk exposure, elements of corporate governance in place, and the management of such insurance companies,” said the report. The life companies launched a number of traditional and unit linked products during the period. 5 6 7 8 Volume 58, March 2011 We hope you find this newsletter informative and we expect feedback from you so as to make the newsletter a better value added product. In this issue • Industry Overview • Regulatory Update • New Products • Distribution tie‐ups • Company News • New Appointment • International News Published by Allons Insurance Research & Consultants Private Limited www.indiainsuranceresearch.com 1 Insurance NewsBytes INDUSTRY OVERVIEW: NEW BUSINESS DOWN BY 14% The life insurance sector continues to show good y‐o‐y growth despite 2009‐10 being an eventful year for the sector in terms of regulatory changes and bottom line taking priority over top line for life companies. If we see month‐on‐month growth of new business premium the industry has witnessed Month‐on‐Month (MoM) de‐growth of 14% during January 2011. This is the fifth month post the revised ULIP guidelines came into force on September 1, 2010. While private insurers have recorded MoM de‐growth of 18% during January 11 while LIC recorded a 13% de‐growth. On YTD basis, the life industry witnessed 26% growth in new business premium during (Apr‐Jan) FY11 as compared to that in (Apr‐Jan) FY 10. Private insurers have witnessed 5.8% growth while LIC recorded 37% growth in new business premium during (Apr‐Jan) FY11 as compared to the corresponding period last fiscal. In terms of annualized premium equivalent (APE), the life industry witnessed 25% growth in new business premium during (Apr‐Dec) FY11 when compared with that in (Apr‐Dec) FY 10. Among the private life insurance companies, SBI Life was at the top with a new business premium of Rs 577 crore followed by ICICI Prudential & HDFC Standard at Rs 546 crore & Rs 353 crore respectively. Of the total business of Rs 8301.19 crore in January 2011, LIC has managed to collect Rs 5416.79 crore. The remaining 35% premiums were collected by private insurers. Volume 58, March 2011 www.indiainsuranceresearch.com The table below shows the new business premium: Insurers SBI Life ICICI Prudential Bajaj Allianz Reliance Life Birla Sun Life HDFC Standard Max New York Tata AIG Life Kotak Life Met Life Aviva Life ING Life Canara HSBC Star Union Dai‐Ichi Future Generali Shriram Life Bharti Axa IDBI Federal Sahara Life Aegon Religare DLF Pramerica India First Private Total LIC Grand Total Insurers SBI Life ICICI Prudential HDFC Standard Bajaj Allianz Reliance Life Max New York Birla Sun Life Tata AIG Kotak Life Canara HSBC Met Life ING Life Shriram Life Star Union Dai‐Ichi India First Aviva IDBI Federal Future Generali Bharti Axa Life Aegon Religare DLF Pramerica Sahara Life Private Total LIC Grand Total SOURCE: IRDA Apr‐Jan FY11 (Rs mn) 52,750 51,972 25,773 21,714 15,654 29,237 16,275 9,907 8,513 5,361 5,284 4,736 6,298 4,428 3,204 4,578 2,832 3,-,-,648 671,353 950,001 Sep‐Jan FY11 (Rs mn) 28,849 26,061 15,522 13,440 9,653 8,431 6,716 4,885 4,097 3,153 2,792 2,604 2,592 2,512 2,182 2,357 1,961 1,757 1,-,002 280,508 422,510 Apr‐Jan FY10 (Rs mn) 48,457 44,031 28,970 24,221 22,047 22,648 14,875 9,251 8,299 7,437 5,538 4,865 4,630 1,685 2,949 3,306 2,956 2,-,277 490,195 753,472 Growth (%) Sep‐Jan FY10 (Rs mn) 31,410 26,776 13,722 17,665 14,747 7,912 13,458 5,348 5,446 2,582 4,505 2,527 2,144 2,-,093 1,390 2,126 1,-,010 282,085 443,095 Growth (%) 8.9% 18.0% ‐11.0% ‐10.4% ‐29.0% 29.1% 9.4% 7.1% 2.6% ‐27.9% ‐4.6% ‐2.7% 36.0% 162.8% 8.6% 38.5% ‐4.2% 53.2% ‐31.7% 88.8% 147.7% 494.5% 5.8% 37.0% 26.1% ‐8% ‐3% 13% ‐24% ‐35% 7% ‐50% ‐9% ‐25% 22% ‐38% 3% 21% 1% 233% ‐24% 41% ‐17% ‐38% 25% 83% ‐43% ‐12% ‐1% ‐5% 2 Insurance NewsBytes REGULATORY UPDATE: ECONOMIC SURVEY The Economic Survey 2010‐11 has said there will be different set of norms for life and non‐life insurance companies. The Survey said that investors would be required to be made aware of the financial performance, company profile, financial position, risk exposure, corporate governance and management of these companies. “The Insurance Regulatory and Development Authority is participating in the meetings of the Standing Committee on Disclosures and Accounting Issues (SCODA) set up by the Securities and Exchange Board of India to finalise the disclosure requirements for insurance companies in their prospectus documents,” the Survey added. “Several insurance companies will be completing 10 years of their operations shortly, after which they may be allowed by the regulator to go in for an IPO,” the Survey said. In October last year, capital market regulator SEBI had given approval to insurance companies for coming out with a public float. Several private sector insurers, including Reliance Life and HDFC Standard Life, have shown interest in tapping the capital market to augment their resource base. Among the life insurers, HDFC Standard Life and SBI Life have completed 10 years of operations. As per the disclosure norms in the offer document of life companies approved by SEBI, the insurers would have to come up with disclosure of risk factors specific to the companies. Also, the offer document would have a glossary of terms used in the insurance sector. Besides the state‐owned Life Insurance Corporation, 22 private companies are offering life insurance policies. In the general insurance industry, there are 24 players, of which four are from the public sector. SERVICE TAX The Finance Minister has proposed to levy service tax on the investment component of the traditional life insurance policies similar to ULIPs and this is likely to push up costs to policyholders. Besides, in ULIPs, some of the services offered by the insurance companies, such as premium allocation and policy administration charges, are back in the service tax net. This is likely to affect the yield on investment. Volume 58, March 2011 www.indiainsuranceresearch.com PNB PRINCIPAL INSURANCE BROKING LICENSE CANCELLED IRDA has said that it has cancelled the licence of PNB Principal Insurance Broking pursuant to its request for surrender. This is pursuant to the restructuring of the insurance broking business of state‐run Punjab National Bank, under which PNB bought out the stake of its two partners. However, the other local partner Vijaya Bank would remain with the joint venture. PANEL TO LOOK INTO MODALITIES OF ELECTRONIC ISSUE OF POLICIES The Insurance Regulatory and Development Authority has formed a panel to look into modalities of electronic issue of policies. Mr A. Giridhar, Executive Director, IRDA, is the Chairman of the panel which would have 10 other members from industry and agencies. The panel, which would submit its reports in a month, will examine various aspects such as mechanism of electronic issue of policies, the legal implications, cost‐ benefit analysis and operational procedures, among others, said a circular. IRDA ASKS INSURERS NOT TO OUTSOURCE CORE ACTIVITIES Issuing guidelines on outsourcing, insurance regulator IRDA said that insurers should not outsource core activities like investment and grievance redressal as it may dilute internal controls. The Insurance Regulatory and Development Authority (IRDA) has outlined the business verticals of insurance companies which would fall under core activity. They include underwriting, customer identification and fund accounting among others. "The insurer shall ensure that outsourcing arrangements neither diminish its ability to fulfill its obligations to policyholders nor impede effective supervision by IRDA," IRDA said in a circular to all insurers. Insurers therefore have to take steps to ensure that the service provider employs the same standards in performing the services as would be employed by them if the activities were conducted in house. "Accordingly, insurers should not engage in outsourcing that would result in their internal control, business conduct or reputation being compromised or weakened," it added The non‐ core activities outlined by IRDA include payroll management, claim processing over overseas 3 Insurance NewsBytes medical insurance, call centre and housekeeping among others. IRDA said the guidelines will take effect immediately and insurers would have to terminate all contracts, which does not comply with the norms by June 31, 2011. IRDA’S OUTSOURCING LAW ON CORE ACTIVITY HAMPERING BPOs Business from the insurance sector is tanking for domestic BPO service providers with the Insurance Regulatory and Development Authority issuing strict guidelines that prevents insurance firms from outsourcing “core activities”. While the guidelines were made official on February 1, business from the sector has been dull over the last two months as insurance companies in India exercised caution anticipating the regulation, BPO firms said. This is a major blow for the $1.2‐billion domestic BPO market since apart from telecom, the insurance vertical was emerging as a major growth driver. Most insurance companies currently have 300‐500 people servicing them through BPOs. The segment promised BPO companies higher profitability and a way to circumvent the low‐ margin high‐volume play of telecom. IRDA, in its notification to the CEOs of insurance firms, said that “it is not desirable to outsource the core and important activities which will affect corporate governance, protection of policy holders, solvency and revenue flows of insurer.” FILE & USE PROCEDURE TO BE FOLLOWED ON GOVT SCHEME: IRDA To plug yet another loophole in the insurance industry, the Insurance Regulatory and Development Authority has asked insurance companies to follow the ‘File and Use’ guideline for social schemes sponsored by the government. The regulator has asked insurers to file the product after the tender had been awarded under the ‘file and use’ procedure, within 10 days from the date of such an award. Pricing should be based on the previous experience of such schemes insurer, it added. offered by the IRDA said insurers should adhere to the conditions of the scheme and also change them according to the changes proposed by the government from time‐to‐time. An insurer, however, will not be required to file the product if an existing product approved by the regulator was similar to the proposed scheme. It will have to inform the regulator and submit all relevant details. In case of Volume 58, March 2011 www.indiainsuranceresearch.com covering different areas , IRDA said the insurer would have to present details of the method of computation of premium, source of data, assumptions and losses and expected losses and profit margins. Also, the regulator has asked insurers to show the certificate given by an appointed actuary on the viability of the rates proposed and the features changed from the previous filing. MORE INSURANCE PENSION MONEY MAY FLOW INTO CORE SECTOR PROJECTS A panel set up by the prime minister has proposed to allow pension and insurance funds to refinance completed infrastructure projects in order to release funds into the banking system. The committee on infrastructure financing, headed by former Reserve Bank of India deputy governor Rakesh Mohan, has also suggested tweaking taxation policies to attract foreign investment into power, roads, ports and airports, a senior Planning Commission official said. The first meeting of the panel was held on February 4. “Investment risk associated with infrastructure projects has been highlighted as one of the major constraints for financing. The committee was of the view that completed projects are safe for insurance and pension funds for investment. At the same time, this would result in freeing up funds that can be used to fund fresh projects,” he said. Infrastructure development in many countries is funded through the insurance and pension funds. India requires these funds if its huge investment requirements have to be met, the official said. Currently, insurance companies can allocate up to 15% of their investment portfolio to infrastructure and social sector. The committee was constituted to evolve strategies for funding physical infrastructure projects in the current and next fiveyear plan periods. It is also expected to assess investments required to be made by the Centre and state governments, and public‐sector undertakings in major physical infrastructure sector projects. India aims to double its investment in infrastructure to about one trillion dollars during 12th Plan period of 2012‐17, from an estimated $500 billion in 2007‐12. It is expected that half of the investment target for infrastructure would come from the private sector. 4 Insurance NewsBytes NEW PRODUCTS: SBI LIFE LAUNCHES UNIT LINKED WEALTH ASSURE PLAN SBI Life Insurance launched a unit linked plan ‐ Smart Wealth Assure ‐ aiming to provide guaranteed fixed returns to the policyholder. Smart Wealth Assure guarantees at inception a pre‐specified NAV applicable at the end of the 10‐ year term, SBI Life said in a statement. SBI Life Smart Wealth Assure is a single premium plan and offers policyholders optional Accidental Death benefit and partial withdrawal facility from 6th policy year onwards. The scheme would be available at a minimum amount of Rs 50,000, and would cover policyholders from 8 years to a maximum 65 years of age with a policy term of 10 to 30 years. KOTAK LIFE LAUNCHES ASSURED INCOME PLAN Kotak Life insurance has launched Kotak Assured Income Plan which would provide a guaranteed annual income to the insured for 20 years. The plan provides life cover for 30 years for a premium payment term of 15 years. The plan would provide guarantee of a second income of up to 10.1 per cent of the sum assured to the policyholders for a period of 20 years. AVIVA LAUNCHES TERM PLAN www.indiainsuranceresearch.com BIRLA SUN LIFE LAUNCHES UNIT LINKED FORESIGHT PLAN Private insurer Birla Sun Life Insurance Company announced the launch of BSLI Foresight Plan ‐ a unit‐linked plan. BSLI Foresight Plan provides customers the upside of market returns, while shielding their investments from downside risks, its Chief Actuarial Officer Fabien Jeudy said. This medium‐term unit linked savings plan is apt for a volatile market providing the perfect blend of guarantee, flexibility and liquidity options, he said. "Equity markets have a huge potential towards meeting customer's long‐term wealth creation needs. However, many customers tend to stay away from this attractive opportunity due to lack of knowledge on timing the market and the resultant fear of loosing their money," he said. LIC LAUNCHES SAMRIDHI PLUS UNDER ULIP PORTFOLIO Life Insurance Corporation of India today launched 'Samridhi Plus' under its unit linked portfolio offering insurance protection, safety and growth. Samridhi Plus safeguards policyholders' investment from market fluctuations, LIC said in a statement here. Accident benefit option is also available under this plan that will be equal to the life cover up to a maximum of Rs 50 lakh, subject Aviva Life Insurance launched Lifeshield Platinum, a protection plan that offers individuals a shield for three different kinds of needs. Under this plan, one can choose to cover ones outstanding loan amount in event of death, make a lump sum payment to beneficiaries or set up a regular stream of income for your family. The policy term for the plan is fixed for 10 years, it TATA AIG LAUNCHES SINGLE PREMIUM ULIP (monthly ‐ ECS) to Rs 30,000 (single premium) to certain conditions. said. The minimum age at entry level for Samridhi Plus is 8 years while the maximum age is 65 years. The minimum premium ranges from Rs 1500 depending on the mode of payment while the Tata AIG Life Insurance Company Ltd has launched a non‐participating single premium unit linked endowment insurance plan ‘Swarna Pratigya'. This plan is for those in the age group 51‐70 with maximum maturity age of 80 years. This plan offers life coverage of 1.1 times of single premium for the entire term of 10 years, with minimum premium starting from Rs 1 lakh. Policyholders can also pay a ‘top‐up premium' and get additional cover, according to a company press release. Volume 58, March 2011 maximum is Rs 1 lakh per annum under any mode for the 5 year premium paying term. 5 Insurance NewsBytes www.indiainsuranceresearch.com DISTRIBUTION TIE‐UPS: LIC CROSSES 2.5 CR POLICY TARGET VIJAYA BANK & BAJAJ ALLIANZ SIGHN MOU Life Insurance Corporation today said it has crossed the landmark 2.5 crore policies in the current year as of January 29. "LIC has completed 2,52,44,846 policies and received Rs 34,137.12 crore in First Premium Income in the current financial year," the country's largest insurer said in a statement here. The ULIP Plans under the new IRDA guidelines helped boost the figures substantially; it said adding that the new business under the new ULIP Plans as of January 29 stood at 1,098,663 policies generating a premium of Rs 5136.25 crore. The Corporation's Endowment Plus, launched on September 20, 2010, has garnered 1,017,560 policies with a First Premium Income of Rs 4,804.12 crore, in just over 4 months, it said. Pension Plus, the only regular premium pension plan available in the market after introduction of new rules has brought in 81,103 policies with a First Premium of Rs 332.13 crore, it added. Vijaya Bank has signed a memorandum of understanding with Bajaj Allianz Life Insurance to cover the bank's borrowers under a group life insurance plan. According to Albert Tauro, Chairman and Managing Director, "We are happy to partner with Bajaj Allianz Life Insurance to cover our borrowers, including the employees of the bank, with a solution that would provide financial protection from the burden of loan repayment in the unfortunate event of borrower's death.” PNB’S LIFE INSURANCE FORAY Punjab National Bank (PNB) has decided to participate in the life insurance venture through a 'corporate agency tie‐up along with equity participation with an existing Indian life insurance company. In fact, the bank has given up its earlier plans to set up an insurance venture along with a foreign partner. Accordingly, request for proposals (RFPs) have been issued to the existing ten life insurance companies which include Aegon Religare, Aviva, Bharti AXA, Bharti Sun Life, DLF Pramerica, Future Generali, HDFC Life, Max New York and Met Life Insurance. The bank has taken this decision after it received advice from the consultant Boston Consulting Group (BCG), which was roped in by the bank for the job. As a Brownfield model, the bank would first strike a tie‐ up for the distribution and then it will pick up equities from the life insurance company. LIC PAID DIVIDEND Life Insurance Corporation of India paid a dividend of Rs 1,030 crore to the Central government for the financial year 2010‐11. LIC has declared a valuation surplus of Rs 23,478 crore for the financial year ending March 2010. Out of this surplus amount, five per cent is given to the government as dividend while the remaining 95 per cent is ploughed back to the policy holders as bonus. NEW APPOINTMENT DLF PRAMERICA LIFE GETS NEW MD COMPANY NEWS: IDBI FEDERAL LIFE SHAREHOLDERS INFUSE CAPITAL IDBI Federal Life Insurance said that its shareholders have infused Rs 250 crore earlier this month to support business growth. After the capital infusion, the life insurer's paid‐up capital has increased to Rs 700 crore.IDBI Federal, a three‐ year‐old tripartite joint venture between IDBI Bank, Federal Bank and European insurer Ageas, expects to add Rs 530 crore in new business in 2010‐11. This would be a 35 per cent growth over the previous fiscal. Volume 58, March 2011 DLF Pramerica Life Insurance Co Ltd (DPLI) has a new Managing Director and Chief Executive in Mr Pavan Dhamija. Prior to this elevation, Mr Dhamija was Chief Operating Officer of the company. Mr Kapil Mehta, who was hitherto the Managing Director & CEO, has now stepped down from this post. He will, however, continue to be associated with the company in the role of an advisor. DPLI is a joint venture between realty major DLF and US‐ based Prudential Financial. The joint venture company started its business operations in September 2008. 6 Insurance NewsBytes www.indiainsuranceresearch.com INTERNATIONAL NEWS AVIVA EYES POTENTIAL DISPOSAL THIS YEAR ZURICH TO BUY 51% OF SANTERDA’S LATIN AMERICA’S INSURANCE UNIT Aviva, said it could sell assets this year as part of a plan to concentrate on the countries where it was best established. Chief executive Andrew Moss said, company would focus more closely on its most profitable markets, at the expense of other territories. Zurich Financial Services, Switzerland’s largest insurer, agreed to pay as much as $2.1 billion for 51 per cent of Banco Santander’s insurance business in Brazil, Mexico, Chile, Argentina and Uruguay.The Zurich‐based company will make an initial payment of $1.67 billion with Santander receiving as much as $420 million over the next 25 years depending on the performance of the unit, the Swiss insurer said today in an e‐mailed statement. Zurich will manage the insurance joint‐ venture. The acquisition will make the Swiss insurer the fourth‐largest in Latin America, after Banco Bradesco, Mapfre and Itau Unibanco Holding, Zurich said. It will also gain access to more than 5,600 Santander branches and 36 million customers in the region through a 25‐year distribution agreement. PRUDENTIAL POSTS 24% RISE IN 2010 OPERATING PROFIT Prudential , posted a 24% rise in 2010 operating profit, helped by strong sales in Asia, and said it expects to grow its business "profitably" and generate good returns for investors. Prudential, which last year launched a failed $35.5 billion bid to buy Asian rival AIA Group Ltd. (1288.HK), said full‐year operating profit rose to GBP1.94 billion from GBP1.56 billion in 2009. The result is higher than a GBP1.73 billion average forecast from 20 analysts. Its 2010 insurance sales on an annualized premium equivalent, or APE, basis rose 23% to GBP3.48 billion, a much stronger pace compared with the 1% rise to GBP2.84 billion in 2009, during the financial crisis. APE counts 100% of regular premium sales and 10% of the money earned from selling single‐premium products. AIG SELLS MET LIFE STAKE FOR $9.6 BN American International Group (AIG) sold $9.6 billion worth of MetLife shares, producing gross proceeds of about $6.3 billion to accelerate its payback of US Treasury bailout funds. AIG and the Treasury said a total of 146.8 million shares of MetLife common stock were sold at $43.25 per share in a deal that met strong demand. The total $9.6 billion sale also included the sale of $3.3 billion in MetLife preferred stock. The shares and other securities were received as part of MetLife’s $16.2 billion purchase of AIG’s Alico International Insurance unit last year. But the $3.3 billion in preferred shares will remain in an indemnity escrow account, to be released over a two‐year period to pay down the Treasury’s preferred share interests in AIG. ALLIANZ QUARTER 4 PROFIT RISES Allianz reported a 11.4 percent rise in profit for the fourth quarter, mainly reflecting increased profitability in property‐Casualty and Life/Health segments, despite a decline in Asset Management profit. The company also announced a higher dividend for fiscal 2010. The Munich, Germany‐based company's fourth‐ quarter net income attributable to shareholders was 1.14 billion euros (about $1.57 billion), higher than last year's 1.02 billion euros. Earnings per share grew 10.7 percent to 2.49 euros from 2.25 euros a year ago. Net profit more than doubled to GBP1.43 billion from GBP676 million previously. Prudential said its capital position remains strong, with a capital surplus at GBP4.3 billion, up from GBP3.4 billion at the end of 2009. The company declared a dividend of 23.85 pence a share, up 20% from 19.85 pence previously. Volume 58, March 2011 7 Insurance NewsBytes www.indiainsurancerese earch.com o www.indiaainsurancereseearch.com fo or more reseaarch reports, statistics and database pro oducts on Visit us on Indian insurance indusstry. Contact Details D Gopal Ku umar CEO & Prrincipal Consu ultant gopal@in ndiainsuranceeresearch.com m- B Roy Somrup Bose Research h Executive somrup@ @indiainsuran nceresearch.co om - Disclaimer ons Insurance Research & Consultants. C TThe informatio on herein is The informaation in this reeport was preepared by Allo believed to be reliable and a has been n obtained fro om public sou urces believed to be reliable by Allonss Insurance h & Consultan nts makes no representatio on as to the accuracy a or Research & Consultants. Allons Insuraance Research ormation. completeneess of such info Volume 58, 5 March 2011 8