LIC and GE might tie up for Credit Card business

The present scenario is pointing towards a possible discussion between Life Insurance Corporation of India and GE Capital Services, which is the largest issuer of private label credit cards. LIC is planning to issue its credit cards for some time now.

GE is already in a partnership with the State Bank of India for credit cards. Sources are pointing out that the talks with LIC are still at a very preliminary stage and in case of a tie up, a detailed code of conduct will by followed by GE, which prohibits any kind of sharing of business information.

LIC’s motive behind venturing into credit card business is providing help to its policyholders, letting their agents utilize their time better by selling credit cards and on the whole enhance their brand reputation.

Credit card business bears huge potential in the Indian sub continent. Getting into credit card business will allow LIC to leverage its data on policyholders’ credit worthiness and price the card competitively.

Sources also indicate the possibility of LIC getting into a three-way venture with a bank. Corporate Bank could be a part of this venture.

Decision over ICICI to be reconsidered-FIPB

The Foreign Investment Promotion Board is looking forward to reconsider the proposal of ICICI Bank to divest its 24 per cent stake in ICICI Financial Services, the bank's holding company for insurance business in its next meeting scheduled for July 13.

There is some speculation over the issue that FIPB might approach the Banking Division and insurance regulator IRDA.

The bank’s proposal had initially been rejected on the ground that 2(g) (i) of IRDA regulation does not allow a subsidiary company to be a promoter of the insurance business.

ICICI Bank has however decided that it would continue to be the promoter of its insurance businesses, ICICI Prudential Life Insurance and ICICI Lombard General Insurance despite transfer of shares from ICICI Bank to ICICI Financial Services. This piece of news was put forth by ICICI Bank Group Head Strategy and Communication Officer Kalpana Morparia, yesterday in a meeting with Department of Economic Affairs Secretary D Subbarao.

A ministry official has commented that the Board is gearing up to reconsider its decision. The issue might be taken up on July 13.

LIC decides to bring down Transaction costs.

Public Sector Giant, LIC has decided to bring down transaction rates to around 50 paise for collection of small premium and Re 1 for payments. The company is looking forward to making insurance more inclusive by trying to profitably deliver products to smallest buyers.

LIC mobilized premium income of nearly $55 billion last year. This involved 4,050 crore transactions. These transactions don’t count much as compared to the challenge of making monthly payouts for annuitants when their pension policies maturity show maturity in the coming years.

LIC is looking forward for partnership with a public sector bank that allows linkage with payment systems to bring about low cost transactions. Mr. Vijayan, the chairman of LIC reported that the challenge on micro insurance products will be greater where the sum insured is small and premium minuscule.

The company is also taking certain IT initiatives to bring down costs. For example, LIC’s corporate active data warehouse product will allow consolidating policyholder accounts.

ICICI Planning Changes For Rural Areas

The bank, which has already established its hold both in the agricultural and non-agricultural sector in the rural areas, would modify certain urban products to suit the requirements of the farming community, ICICI Bank Senior General Manager Rajeev Sabharwal told reporters.

Sabharwal, here to give a briefing on the bank's follow- on public issue, which opened yesterday, said the lender was looking at financing of pre and post harvest activities, equipment, crop finance, insurance and savings, so that it could tap huge opportunities existing in the sector.

Besides, the bank would also offer products for Small and Medium Enterprises, he said. "The bank is well positioned to capitalize on the growth opportunities that are growing along with the Indian economy," Sabharwal said.

ICICI GETS A thumbs Up from IRDA for setting up holding company

The IRDA (Insurance Regulatory and Development Authority) has given its approval to ICICI Bank to establish ICICI Financial Services, subject to approval of RBI. The bank has decided to set up a holding company to transfer investments of asset Management Company.

The IRDA chairman, Mr. C.S. Rao has said that they had no issues with ICICI setting up its holding company. The proposal, which has received IRDA’s approval, will now be forwarded to the RBI. ICICI has already identified overseas investors for a 5.9% private placement valued at Rs 2,650 crore of the new NBFC.

The estimated value of ICICI Financial Services is Rs 44,460 crore. Over 70% of the value of ICICI Financial Services is expected to come on account of ICICI Prudential.

According to sources, ICICI Bank has set up the holding company to derive value of its subsidiaries in event of regulatory changes that could stop banks from entering into insurance business.

Birla SunLife in for Medical Insurance

Birla SunLife is looking for opportunities in the medical insurance market. Venkatesh Mysore, the country head-India of Sun Life Financial, the 26% equity holder in BSLI said that at the moment the company is looking forward to provide coverage in the form of riders for critical illness but there is scope of expanding and logically thinking medical insurance can fit in well.

However he did not mention when BSLI would launch its insurance product. The Vice President of the company, Mr. Vikram Kotak said that the company informed that the company provided 100% equity option to the customers. He also indicated that a study conducted among 1,1000 of BSLI’s customers showed that there was potential for short duration products like Gold Plus.

Postal insurance will be hived off

The Indian Post Office is all set to hive off its postal life insurance business into a separate entity by next year. There is speculation of it coming under Insurance Regulatory and Development Authority purview.

This effort will bring on more life products as well as avail of the investment opportunities offered to regular insurance companies.

An investment committee is in the making to look for a fund manager for deploying the funds collected from postal life and rural postal insurance schemes into various avenues for investment.

Mr. Shakeel Ahmed, minister of state for communication and information technology said that various amendments are being considered in the Postal Act and changes are likely to be introduced in the next session of the Parliament. The postal department last year recurred losses worth Rs 1,000 crore. Efforts are on to transform the post office into a finance hub along with the possibility of an all in all bank. The matter is being put forth for reviewing to law and finance ministers

BAJAJ ALLIANZ PLANS FOR 20% INCOME FROM HEALTH PRODUCTS

Ujjaini Dasgupta, the Bajaj Allianz head of Health Insurance has reported that Indian assuror Bajaj Allianz Life, in which European insurer Allianz holds the maximum permitted stake of 26%, is planning to generate between 20% and 30% of its premium income from health insurance.

This would amount to about Rs 5bn a year in premiums ($123.4m), although it would be a minimum of Rp20bn by the group’s own projections. Sam Ghosh, the CEO of Bajaj Allianz Health has said that the company was also looking at pension-linked products for business in the rural market and for women. Bajaj Allianz Life is targeting premium income of some Rp86bn this year.

ADITYA BIRLA GROUP PLANS NON LIFE

Aditya Birla is planning to get into the non-life sector in collaboration with a foreign partner. SK Mitra, director of Aditya Birla Management Corp reported that companies from the US, UK and Canada have been approaching Aditya Birla Group for some time. Mr Mitra said that plans for non-life operations are still at a very preliminary stage. The three joint ventures of Aditya Birla’s financial services sector are Canada-based Sun Life — Birla Sun Life Insurance, Birla Sun Life Asset Management and Birla Sun Life Distribution. Aditya Birla has also set up a non-life broking operation, Birla Insurance Advisory Services

The life operation is looking to regain lost market share in the group life sector — down to 5% from 12% three years ago. Fabien Jeudy, vice-president at Birla Sun Life, said that “the promoters will have to double the equity base of the company. They will be required to infuse fresh equity of Rp7bn ($171.4m) into Birla Sun Life’s capital in 2007-08”. Speaking to journalists, Birla Sun Life CEO Vikram Mehmi said that the assurer had changed its strategy and that it had decided to pursue “aggressive growth”, even if this meant a delay in the company reaching breakeven point. Its current paid-up capital is Rp6.72bn.

Mr Mehmi noted that the growth rate in life assurance had been greater than estimated, and that Birla Sun Life wanted to grow “in line, if not faster than the industry”. Branch numbers would be increased by at least 400 this financial year, Mr Mehmi said, while the agency force would be increased substantially from the current 58,000. The company would also target “second- and third-rung” customers of its bancassurance partners Citibank and Deutsche Bank.

India motor pool to appoint chief

In an effort to improve claims management, the India Motor Insurance Pool (IMIP) is expected to restructure with a newly- appointed chief executive.

The Insurance Regulatory and Development Authority (IRDA) has decided to have a review meeting with all non-life insurers in the country of the IMIP, created by the four public and eight private sector general insurers, which have taken over all third-party motor liability risks. The meeting will take place towards the end of the week. Among the issues to be discussed is the conversion of IMIP into a separate organisation for managing the motor third- party underwriting business of all its members

A new chief executive for IMIP is expected to be appointed to manage the newly structured pool. The potential and name of that candidate is still not clarified by IRDA officials.

It is being observed that few insurers are opposed to IMIP, the reason being most of the private-sector insurers are now chasing third- party motor insurance business. The risks being spread among all the 12 insurance companies seems to be a good way out, implying that balance-sheet losses would be minimal.

Underwriting losses until the end of fiscal year 2006-07 aggregated to Rs40bn ($975m) for the four state-run insurers, almost entirely on account of motor third-party risk. For all four companies the investment income during the same period was Rs. 55 bn

INDIA ASKED TO EXEMPT MICRO-INSURANCE FROM SERVICE TAX

report from the United Nations Development Programme prescribed that the Indian government should exempt micro-insurance from the payment of service tax, thus allowing greater penetration of the insurance sector in low income and rural areas. The report indicated that the service tax of 10.2% on premiums adds to the price of insurance. To help keep premiums low for rural poor, government could consider waiver of service tax on micro-insurance products for a limited period.

The author of the report Mr. Anuradha Rajivan stated that the micro-insurance sector could make business worth $2bn over the next two or three years, with more specialisation. He reported that insurance products developed for the urban population would not really work for their rural counterparts. They may need insurance for various other areas, like for a single tree or insurance against snake-bite, the things that affect them more frequently and directly.

Ergo in talks with L&T for insurance biz

Ergo, the German insurance is looking forward to enter India, which is making a sharp growth in insurance business. The company has had talks with L&T Finance for a 26:74 joint venture in life insurance. Ergo, is also in talks with some other companies in India to have a separate alliance for general insurance.

Discussions with L&T met up with Ergo to discuss their interests about venturing into the insurance circuit. Moving into the life and non life insurance sectors with the same partner provides a good option for their progress. It is definitely more beneficial to venture with two separate partners, again according to the respective value proposition of the individual partners,” said an Ergo spokesperson.

Industrial news holders, Ergo is also holding talks with Indiabulls for its life insurance business. Ergo is negotiating with financial services major HDFC for its general insurance foray.

A number of business groups like the Hindujas are gearing up to venture into insurance through joint ventures with foreign insurers. Hindujas was earlier said to be in talks with a European insurer for its planned life insurance foray. A leading European insurer Ergo has a premium income of almost $22 billion and is No. 2 in the German primary insurance market, with $133 billion investments. The group, which operates in 24 countries outside Germany, has 28,310 employees.

China is the another market, which foremost on the company’s priority list. Ergo plans to have a prominent presence in both India and China by establishing new corporations and expects high returns in the property, casualty and life business segments.

Following the 110% growth in the life insurance business in India in 2006-07, there has been a rise in interest in the Indian market. Similar growth rates have been witnessed by the general insurance segment, forcing International insurers to look at launching operations in India.

15% Hike in Investments shown by LIC

In order to maintain a good pace in premium growth, LIC is planning to increase its investment by 15%. D.K.Mehrotra has reported that the company will put as much as Rs 1,15,000 crore into stocks and bonds this fiscal. He also said that presently the insurer’s investments exceed Rs 600,000 crore.

This increase in investment might prove very helpful for the Indian economy to meet rising demand for funds to fuel the second fastest growth rate among major economies globally. The country is estimated to need as much as 320$ billion by 2012 to build roads, ports and power plants.

Premium income more than 2006-07 giving LIC a 74.2% market share. The company plans to keep the proportion of equity investments at 10%. It owns 14.8% of Maruti Udyog, after buying 13 million, after buying 13 million shares last month.

Pension policy returns to dip as people live longer

Policyholders `living a long life’ have increased dramatically for insurance companies. It is being observed that life expectancy has increased in the last ten years compared to the whole of last century. The implications of this for policyholders are that post-retirement, regular income through pension schemes will become much more expensive. A 65-year old man in UK was expected to have a life expectancy of 18 more years 10 years ago. This has now gone up to 22-23 years. Life expectancy for the older section of the society is growing up at the rate of five hours a day. In India though, there is not much demand for annuity products — policies that provide a stream of regular income against a lump sum payment — because of relatively low returns. A bank deposit gives a return of 9.5% capital returns. Life annuities, in contrast, without return of capital provide less than 9.5%. The demand, however for annuities will exceedingly rise in years to come. A fourth of premium for life insurers comes from sales of pension policies. As per law, policyholders are required to use the proceeds of the policy to buy annuities on maturity. Greater the increase in life expectancy, the less is the annuity the policyholder will get.

The longevity has improved because of development in medicine, especially related to heart disorders. In the past, most of the development was centralized to reducing infant mortality and developing a cure against infectious diseases that harmed the younger population. Mr. Willet has reported this

There has been an increased expenditure in Statin. Statin is a blood-thinning drug that curtails the chances of stroke. Statin usage has been increasing 30% every year, in UK, with total prescriptions crossing 30 million doses for a population of 60 million. Similarly, breast cancer mortality has been reduced despite an increase in the number of cases. Nationwide screening campaigns have resulted in this.

Mr. Willets is the longevity director of Paternoster, a newly formed life insurance company in the UK, which has offshored its actuarial work to India. According to Paternoster India CEO V Balamurugan, it is apt to go down to individual levels because of two advantages India holds. First is the access to a large pool of actuarial talent, and second is the cost efficiency.

While the good side of life expectancy is that life insurance premium drops, most people are not in a position to face the downside. Studies have put forth that people tend to undershoot life expectancy by five years. By doing this, they underestimate their savings requirements.

RELIANCE GENERAL-Banking on Auto, Health Insurance

Reliance Genera Insurance Company, which stands as one of the budding companies in the overall 25000 insurance space, has implemented some aggressive retail plans. The company is heading for a variety of financial services distribution houses and looking forward to ‘mutually beneficial’ partnerships on the Reliance Capital brand franchise.

Reliance General has shown a high in its premium by 462% to Rs 912.23 crore in 2006-07. Mr. K.A. Somasekharan, CEO, Reliance General has reportedly said that the key growth factors which have resulted into a growth to over 70% in the last financial year have been Fire, health and motor insurance. The overall business has been contributed in a small volume by Premium income.

The company has started working towards the second phase of insurance reforms to be introduced next year, with some changes to be adopted in the terms and conditions of all general insurance products. According to the CEO, the company is emphasizing on simple, unambiguous and customer friendly policy wordings. Reliance General has no FDI plans, as it is a new entrant and one of the very few companies without a foreign partner.

TATA AIG-New Plans

Tata AIG Life Insurance Company Ltd today is reportedly expanding its footprint in the country with a growth in its number of offices and focusing more on small towns, which offer a more favourable growth factor.

Tata AIG Managing Director Trevor Bull said on Friday that the company is planning to bring an increase in its number of offices from 72 to 120 during the year. He reported that 10 new branches would be added in the eastern region. He also put forth his plan of doubling the sales force from 10,000 and the company would move base to smaller towns to meet their growth targets. Bull said that the company was looking out for a quantum jump in premium income with the steep rise in offices and sales force during the year. The premium income was Rs 1,367 crore during 2006-07, including new premium of Rs 478 crore. Tata group companies account for two per cent of the total premium earning of Tata AIG Life. Bull claimed that the company would need fresh capital infusion. The present capital of Tata AIG Life was Rs 440 crore.

The company indicated their interest in launching new products in the current year in health, pension, gratuity and unit linked products.