LIC demands top offer value for ABB

Life Insurance Corporation (LIC) is nudge Swiss engineering firm ABB to raise the open offer price made to public shareholders of its Indian support, in which the insurer holds 16.3(%) per cent. ABB has presented to buy 4.9 crore shares in its domestic arm at Rs 900 respectively through the open offer closing on July 27, to move up its stake to 75(%) per cent from 52(%) per cent currently.

In a unusual request of India’s largest institutional investor playing an objector for public shareholders, LIC, which has mostly been a inactive investor so far, has asked ABB to raise the open offer price to Rs 950-1,000 per share, according to a basis privy to the subject.

“Tomorrow (Friday) is the last day for the company (ABB) to modify its (open offer) price. We will take a sight based on the revision, if any,” a top LIC official told ET on Thursday, requesting mystery.

In reply to a query, ABB’s spokesperson said, “As a matter of principle, ABB does not comment on market rumours.”

If ABB manages to induce LIC to give up all its shares in the open offer, the Swiss parent will hold around 65(%) per cent in ABB India. But, it is not clear whether LIC will surrender all its shares in the open offer, which opened on July 8. LIC holds the shares in ABB crossways various schemes. Other key public shareholders in ABB include Aberdeen Asset Managers, which holds 3.55(%) per cent, ICICI Prudential Life Insurance Company —1.5(%) per cent and General Insurance Corporation of India —1.4(%) per cent.

Bankers said a buyer can raise the price prior to the last 7 days of the open offer’s close. “If LIC has managed to push ABB to this phase, it looks like it is serious about getting a high price for the venture, but you never know,” said a top official with a domestic investment bank.

ABB shares on Thursday closed flat at Rs 869.85 in a feeble market. It is still at a 3(%) per cent discount to the open offer price of Rs 900. The decision by ABB to buy back shares of its Indian arm on May 17 came when the stock was reeling under selling demands after ABB dissatisfied the market with its January-March quarter results. The company posted a 91(%) per cent dip in net profit in the quarter, exhausted down the stock by 16(%) per cent in two weeks. ABB’s announcement to buy back shares boosted the share price by 29(%) per cent.

Share buybacks are careful by investors as a signal by the parent that its stock is worth at least the open offer price. The logic is promoters know best about the company’s prospects. Promoters usually use share buybacks to arrest a slide in their stocks or to boost them.

HDFC Standard Life evaluation at Rs - 3,380 cr

In a primary of its kind, HDFC Standard Life Insurance has put a worth of Rs 3,380 crore on itself as on March 31, 2010. The company has followed marketplace reliable implanted value (MCEV) technique to calculate the valuation.
The embedded value (EV) of a life insurance company is the current value of upcoming profits plus adjusted net asset value. It is constructed from the field of actuarial science which allows insurance companies to be valued.
The valuation comprises Rs 670 crore on account of shareholders’ accustomed net worth and Rs 2,710 crore for the business in strength. Meanwhile, the company is expected to impart Rs 350 crore throughout the current financial, as against Rs 172 crore in last financial. “The idea behind doubling-up our capital infusion is basically two-fold,” said the company’s CFO Vibha Padalkar said.
The bigger capital mixture for the business growth throughout the current financial is on account of the new scheme which is being unveiled following the the sweeping regulatory changes for unit linked insurance plans (Ulips) by Insurance Regulatory & Development Authority (Irda), Padalkar added.
The company is also looking for primary public offering (IPO) in 2012. Assets under management of the company double to Rs 20,770 crore in 2009-10 as against Rs 10,600 crore in 2008-09.

Reliance Life plans to dual market share in Three years

Reliance Life Insurance Company (RLIC) plans to twice its market share in the entire life insurance business to 10(%) per cent from the present 5.5(%) per cent in the next 3 years, RLIC President and Executive Director Malay Ghosh said here on 10th July.
“We hope to get an overall premium of Rs 20,000 crore and more than double our assets under management to cross over 30,000 crore in the next 2 years,” said Ghosh. After SBI life and ICICI Prudential, it claims to be the third biggest life insurance company in the private division.
He also announced they have crossed the 6 million policies highlight in less than 5 years. “The company has issued over 2.3 million policies in the last fiscal year, which is the biggest new business adding by the company in any year,” Ghosh said.
He said. “Our rural presence added considerably to this milestone,”
Apart from a healthy combine of unit-linked and traditional products, RLIC plans to focus on developing health insurance segments in the country.
RLIC has an assets under management of Rs 13,677 crore and a marketplace share of 10.2(%) per cent among private players. The company operates during a strong sharing network of 1,247 branches with 195,000 agents.
RLIC has a business premium of Rs 6,605 crore. Catering to individual and corporate needs. It is a part of the Reliance Dhirubhai Ambani Group.
There are 23 life insurance companies in the country, after the insurance sector was liberalised a decade ago.

Insurance Subsidiary of private banks gets FDI cover up

Other downstream investment by Indian-owned foreign banks to be treated as FDI. Two of India's biggest private sector lenders — ICICI Bank and HDFC Bank — have succeeded, although partially, in their attempt to retain the Indian tag. Investment by these banks and others, where foreign shareholding exceeds 50(%) per cent, in their subsidiaries will be treated as overseas investment with insurance life form the sole exception, they have been told.

At present, there are 5 such lenders in India, including IndusInd Bank, ING Vysya and Yes Bank. These banks were classified as overseas banks when the norms were changed in February 2009. Since then, these lenders, which are confidential sector Indian banking companies, have been begging the department of industrial policy and promotion (DIPP), the finance ministry and the Reserve Bank of India for a review of the norms.
“It has been obviously communicated to the banks that they are overseas-owned Indian banks as they are registered in India but their equity is owned by foreigners for purposes of downstream investment. They are companies owned by foreigners. They have the right to open branches, as they are registered here and they are not like foreign banks. But if they invest in any subsidiary, except in their insurance businesses, then that investment would be treated as FDI (foreign direct investment),” a DIPP official told Business Standard.
DIPP, the nodal agency for FDI policy, is predictable to soon release a detailed clarification on how the downstream investment would be designed, the official said, and requesting anonymity. The issue was firstly raised by ICICI Bank and HDFC Bank, whose ownership had come under the scanner in the backdrop of new norms as foreign stakes in these two banks are 77(%) per cent and 64(%) per cent, correspondingly.
“A problem would happen when the banks intend to put in money into sectors that have particular FDI caps on them because that would be calculated as FDI,” said a Mumbai-based banker who refused to be recognized.
“This (the DIPP move) would impact the supplementary businesses of the banks. They would now be more careful in making any downstream investment, as the new rule would definitely act as a big deterrent. It might also lead to some reorganization of the groups in their shareholding patterns to comply with the norms,” said Punit Shah, leader of financial services (taxation) at KPMG.
An exemption from including insurance subsidiaries would particularly help ICICI Bank-promoted ICICI Prudential Life and ICICI Lombard General Insurance, as overseas investors hold 26(%) per cent each in the two joint ventures. If ICICI Bank’s holding is treated as overseas holding, there would be a breach of the sectoral overseas investment ceiling of 26(%) per cent for insurance.
The fate of HDFC Standard Life and HDFC Ergo are, however, indistinct as the companies are promoted by HDFC, which operates like a holding company with HDFC Bank also as a subsidiary.
In case of other subsidiaries of banks, such as mutual funds and brokerages, the problem of sector caps does not arise as foreign investors can set up wholly-owned Indian ventures.
A banker said the other sector where FDI cap would be breached was pension fund managers. The ICICI group had set up a pension fund management company to manage the New Pension Scheme corpus.
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Return-of-premium alternative may be positive for some

Despite financial planners untiringly extolling the virtues of pure risk covers — term insurance plans offered by life insurance companies — a vast majority of future policyholders remain unconvinced about having to split out a premium without being assured of any financial benefit in return, should they outlive the policy tenure.

This perception has contributed to the status of unit-linked insurance plans (ULIP) and endowment plans, which offer an investment module, but come at a significantly higher cost. Few policyholders realise that in the bargain, they may have settle for an insufficient life cover.

For those seeking the middle ground between the two options, some life insurers offer return-of-premium plans, with HDFC Standard Life’s Premium Guarantee plan being the latest among them. Others with similar product offerings include ICICI Prudential Life, Bajaj Allianz Life and Birla Sun Life.

Under HDFC SL’s Premium Guarantee plan, winning maturity, the policyholder is entitled to receive an amount equivalent to all the premiums — excluding any extra premium charged due to underwriting, revival or alteration charges, if any — paid through the policy’s tenure. In the event of the insured’s death during the policy term, the sum assured will be provided to his/her dependants.

As for the policy, a 30-year-old female opting for a term of 25 years will have to pay a premium of Rs 7,330 per annum for a sum assured of Rs 10 lakh. On maturity, the policyholder stands to collect a sum of around Rs 1, 83,250.

Compared to ULIPs, which provide life cover that is not equal with the premium outgo, the plan is surely cheaper, and seems like a compelling buy for an individual whose primary aim is to maintain her family’s interests in the event of her death, but all the same, wishes to get the premium back if she survives the term.

While it does address one of the key concerns of many policyholders, one needs to bear in mind that the comfort and peace of mind it offers comes with a cost attached. A comparison between the premiums charged by HDFC SL’s Term Assurance Plan (pure protection cover) and Premium Guarantee Plan (return-of-premium policy) shows that the former is more cost-effective.

Assuming the aforementioned parameters to be the same, the Term Assurance Plan will entail an annual premium of just Rs 2,541. The difference between the premium payable in the case of the two plans — that is, Rs 4,789 per annum — if invested for the same period in other instruments like equities or even debt, can get much higher maturity proceeds than the amount one can expect if one survives the tenure of the Premium Guarantee plan.

Richer India moves awake in insurance ranking

As Indians grow richer and save more for retirement, the distribute of the Indian life insurance industry has improved in world markets. India’s ranking between life insurance markets has risen from number 10 last year to the number 9 position, displacing Taiwan.

When life insurance industry was opened for contest in 2000, India ranked number 20 among life insurance markets and accounted for a mere 0.5% per cent of the world premium. 10 years on, the share has better to 2.45% per cent, overtaking developed markets in the West such as Spain, the Netherlands, Switzerland, Sweden Belgium, Ireland and Finland, South Africa Australia and Canada.

According to Swiss Re’s annual study of world insurance markets on a price rises-adjusted basis, global insurance premiums contracted by 1.1% per cent to $4.06 trillion in 2009. This is a development over 2008 when global premiums shrank 3.6% per cent. Life premiums fell 2% per cent to $2.33 trillion in 2009 while non-life premiums remained flat at $1.73 trillion.

“In most countries (66%), insurance grew faster than GDP, which shows the robustness of the industry. As credit and stock markets recovered in 2009, the industry was able to restore its capital base. Investment results and overall productivity also improved. For 2010, it is expected that the overall premium growth in the industry will turn positive and profitability and balance sheets will continue to improve,” Swiss Re said in its World Insurance 2009 report.

The major drop in market share has been witnessed by the United States, which accounted for over 29% of world premium in 2000, but now has only 21% per cent of world life insurance premium. Japan too has seen its share drop from 26.4% per cent to 17.2% per cent. An interesting feature of the life insurance business in India is that it has developed significantly faster than the gross domestic product.

The level of insurance penetration (insurance as a percentage of GDP) in India at 4.6% per cent is dual the insurance penetration levels in China (2.3%). The report shows that adjusted for price rises, India’s life insurance industry grew 10% per cent to Rs 2,73,604 crore.

Those within the industry say the life insurance has grown mostly because individuals are channelising retirement savings through insurance because other savings instruments are not that well developed. According to insurers, the Indian market is not yet a mature market, which is reflected in the low levels of premium paid towards protection.

When it comes to non-life insurance, where premium is paid purely of protection (health, auto and property), India ranks 26th and its share of world insurance market is 0.46% per cent.

Non-bank promoted life insurers frights go down in biz

The business of non-bank promoted life insurance companies is probable to be most hit by the new IRDA regulations mandating insurers to consistently distribute unit-linked insurance policy (ULIP) charges over 5 years.
This is because insurance companies will have to option to cutting down distributor commissions, which could decrease the motivation of individual agents to sell ULIPs. While most of the big banks have their own insurance companies, these players do not have big banks as banc assurance partners to sell their policies.
“The new changes may quick part-time agents, who constitute almost 70(%) per cent of the industry's agency force, to stop selling ULIPs. Even corporate agents totally selling insurance may stop doing so. Banks will continue to sell the products because for them it is not a core action. With the new guidelines, around 40-50(%) per cent of the business is at risk,” said Mr V. Srinivasan, Chief Financial Officer, Bharti Axa Life Insurance.
While 20-25(%) per cent of the industry's business comes through the bancassurance route, 50(%) per cent comes from the agency channel, with the remaining coming via corporate agents, brokers and direct marketing.
“First year commissions are going to come downward by 20-40(%) per cent. It will not be as lucrative for agents to sell as before. They will have to look at volumes rather than commission,” said Mr T.R Ramachandran, Chief Executive Officer and Managing Director, Aviva Life Insurance.
The commission structure cannot maintain an agent's income and because of this the agency channel will suffer badly, said Mr Kamesh Goyal, Country Manager and CEO, Bajaj Allianz Life Insurance.
Non-bank promoted companies rely more on the agency channel and tie-ups with corporate agents, brokers and direct marketing channels for distribution. This is because with most of the big banks setting up their own insurance companies, life insurance companies had to look for other distribution channels. According to the Insurance Regulatory and Development Authority regulations, banks can sell policies of only one life and non-life insurer. IRDA had set up a group to explore the option of leasing banks sell policies of multiple insurers. The final report is still awaited.
Companies are hoping that the insurance regulator will soon allow banks to sell policies of multiple insurers. “There is a case for open architecture. Now that all the charges are capped and products have become transparent, it will become simpler for banks to sell products of different insurers,” said Mr Ramachandran.
Aviva Life, being one of the earlier entrants has a strong bancassurance channel with tie-ups with banks like IndusInd Bank, Punjab and Sind Bank and DBS. The bancassurance channel contributes around 50(%) per cent of the total business for the company.
“This is the appropriate time for the banking sector to be opened up. For second generation entrants, there are no banks left to tie up with. The existing players who have a bancassurance tie-up are in a beneficial position while putting late entrants like Bharti Axa at a disadvantageous position”, said Mr Srinivasan.

ING Life to impart capital

ING Life Insurance is place to impart Rs. 240 crore in fresh capital this financial year as part of its plan to reach 5-fold growth in business over the next 5 years, Chief Executive Officer Kshitij Jain said on Thursday.
“In the next 5 years, we expect to see 50(%) per cent of revenues of ING Asia Pacific coming from India, which is now at 20(%) per cent,” Mr. Jain told presspersons. The growth plan entails location up of 150 offices and product innovation. The country-wide growth would commence from the southern region. “We hope to reach a customer base of over five million in this period.”
Mr. Jain said, in the past 2 years, he said, the company did not increase, but tried to achieve competence. The expansion plan would postpone the company's breakeven target to 2013 from 2011.
The Chief Operating Officer of ING Insurance, Tom Mclnerney, said, “India is a important part of ING's network as it is one of the fastest growing markets. India stands tenth in terms of revenues to the company, and we wait for it to move up to seventh position by 2013.”
Mr. Jain said, the new guidelines laid down for Unit linked Insurance Plans (ULIPs) would have an impact and companies were yet to analyse the impact completely.
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Birla Sun Life ties up with Suvidha Infoserve (P)

Birla Sun Life Insurance (BSLI) announced its tie-up with Suvidha Infoserve (P), nowadays. This tie up will allow over 2.3 million policyholders of BSLI to make their premium payments in cash/cheque at any of the 22,000 Suvidha outlets situated close to them.
Policyholders can make their premium payments in cash/cheque across all Suvidha outlets increase at convenient locations like kirana stores, mobile stores, medical stores, STD booths, cyber café’s and travel agencies, easily to hand to policyholders. The policy holder can pay his premium by handing over the amount and his policy number to the store owner who will punch in the information and amount at the kiosk and generate a payment acknowledgement receipt of the transaction.
Speaking on the association Mayank Bathwal, chief financial officer (CFO), Birla Sun Life Insurance said, ``Customer centricity is at the center of all our offerings at BSLI. A product like Life insurance is driven by repeat relations and premium payment is the most frequent and basic interaction between the client and the company. We therefore believe that convenience is key to this offering. ``He further added ``our tie-up with Suvidha Infoserve is a step in this way. Suvidha with its extensive network increase across the length and breadth of the country will particularly be useful to customers in tier 2 and tier 3 locations. We are hoping that these extra touch-points for premium payment will benefit customers.``
Commenting on the partnership, Paresh Rajde Founder managing director (MD) and chief executive officer (CEO) of Suvidhaa Infoserve (P) said, ``The relationship is a win-win situation for policy holders and Suvidhaa retailers which will provide abundant payment options and accessibility to them. We see a huge potential for growth in insurance sector and the integration of two will increase the benefit many fold for both customers and retailers. The alliance also re-iterates our commitment of leveraging the platform of S-commerce and the robust technology along with a convenience designed for our customer’s right in their neighborhood.``