SBI Life launched variable insurance plan

Private sector SBI Life on Monday launched a variable plan, which aims to provide stable returns to investors.

The variable non-participating insurance plan — Flexi Smart Insurance — would provide safety for customer’s investment and stable returns to risk-averse customers having preference for non-market linked plans, SBI Life said in a statement.

A customer would have to pay a minimum premium amount of Rs 1,500 per month to subscribe to the plan, with an option to pay premiums at yearly, half-yearly, quarterly or monthly.

The product would give investors an option to change the sum assured and flexibility of premium payment and interim and additional interest rates.

“We will continue to strengthen our simple and smart series so as to cater to the protection and savings needs of multiple customer segments with varied risk— appetite,” SBI Life MD & CEO M.N. Rao said.

The premiums paid by the policyholder will earn an interim interest rate of 7 per cent during the financial year 2011-12 and the additional interest rate would be declared at the end of the financial year.

In November last year, the IRDA had barred life insurance companies from selling Variable Insurance Products (VIPs), which have greater flexibility over traditional plans, as unit-linked products (ULIPs), which invest major portion of money in capital markets.

VIPs, earlier known as Universal Life Products (ULPs), have greater flexibility over traditional plans and insurance companies used to mix the traits of ULIPs into VIPs.

SBI Life is the first private life insurer to launch a VIP and it becomes the second VIP to be available in the market after LIC Bima Account 2.

During the last financial year 2010-11, SBI Life Insurance posted a 33 per cent increase in net profit at Rs 366 crore, up by 33 per cent. Its total premium collection grew 28 per cent to Rs 12,912 crore.

As of May 2011, SBI Life is the largest private sector players with a market share of 19.84 per cent. In the life insurance market it has a total share of 4.83 per cent.

SBI Life Insurance is a joint venture between State Bank of India and BNP Paribas, wherein SBI owns 74 per cent and BNP Paribas the remaining 26 per cent.

Life insurers' new selling income falls 39% in Feb

New business premium income of life insurance companies fell for the sixth straight month as strict regulations on sale of the once popular Unit Linked Insurance Policy took sheen off investing in insurance products. Insurers collected new business premium of Rs 3,009 crore in February 2011, down 39% from Rs 4,896 crore a year earlier, according to the latest data collated by the industry.

The drop in collection is due to a shift towards straight insurance policies which have regulator-planned investment norms. These have lower-ticket size and not many pension products were sold either during the month. "Pension products contributed 30(%) per cent of the new business premium in the period last year which is missing,'' said India First MD and CEO P Nandagopal.

"Also, ticket size has dropped as industry has moved to traditional products." State-owned Life Insurance Corporation of India's sale plunged 45(%) per cent to Rs 1,296 crore in February. In the corresponding month last year, the company had collected a total new business premium of Rs 2,353 crore. Insurance company executives' said that offering a guarantee of 4.5(%) per cent on pension products is not viable for the industry.

"The product is not attractive with a mandatory two-third annuitisation, return of 4.5(%) per cent and compulsory life cover," said HDFC Life MD and CEO Amitabh Chaudhary. While the private players reported a drop of 33% during the month to Rs 1,713 crore against Rs 2,543 crore in February 2010. Private insurers such as ICICI Prudential and SBI Life reported a fall of 55% and 4% respectively. Generally, last quarter generates 40% of the total new business premium collected during the financial year as this is the tax season and individuals buy insurance policies to get benefit under Section 80C and Section 80 D of the Income Tax Act.

Irda wants life insurers to face 10% stake sale restriction

Life insurance companies will not be allowed to dilute more than 10 per cent stake through initial public offers (IPOs).
The Insurance Regulatory & Development Authority (Irda) is set to cap the stake dilution by life insurers in the first three years of listing. The market regulator, the Securities & Exchange Board of India (Sebi), mandates that 25 per cent shares of a listed company should be detained by the public. Irda is in talks with Sebi to waive this rule.
Private life insurers such as Reliance Life, ICICI Prudential, HDFC Life and SBI Life have expressed interest in tapping the capital markets. The massive valuations of life insurance companies are said to be the main reason for the move, according to a source with direct knowledge of the matter.
“At present, the market value of all life insurance companies if they dilute 25 per cent stake is estimated around Rs 60,000 crore. It will be very hard for the market to absorb such a huge amount. So, there must be a cap on the extent of stake dilution,” said the source.
However, details regarding the extent of the dilution by joint project partners could be left to the companies. “There are a lot of issues involved with shareholding agreements in joint ventures. Ideally, regulators would like to stay away from them. It is still being debated, but will vary on a case-to-case basis,” an Irda official told Business Standard on condition of anonymity. He added the regulator would, however, prefer domestic companies to hold the majority stake.
At present, most of the 22 private life insurers have foreign partners. The Insurance Act caps foreign direct investment at 26 per cent.
Irda is likely to release the IPO guidelines within the next 30-45 days.
According to Irda data, during the first nine months of the financial year, the new business premium income of life insurance companies stood at Rs 86,699 crore. The private life insurers accounted for around 29 per cent of this.
Irda may also allow companies operational for seven years to tap the capital market. The present norms mandate at least 10 years of operations.
Irda may also allow companies which have not registered profit for the past three consecutive years to float a public issue. “According to the disclosure norms, it will be mandatory for insurance companies to declare the profitability of individual products in balance sheets. This apart, they have to disclose their balance sheets, premiums, commission expenses, operating expenses, on annual, half-yearly and quarterly basis. This will help investors take informed decisions,” said the Irda official.

Under Irda scanner NAV-guaranteed Products

After life insurance products, the sector’s regulator is now rotating its attention to unit-linked insurance products (Ulips) that guarantee the highest net asset value over its term. Two life insurance companies that have filed for Ulips guaranteeing such NAVs have been questioned by the Insurance Regulatory & Development Authority (Irda).
“The regulator has asked us why they should allow us to sell such a product,’’ admitted a senior executive of a life insurance company. “It is not influenced about the idea of guaranteeing the highest NAV.”
Unlike regular Ulips that calculate payouts on the basis of NAV at the time of maturity, these policies guarantee the highest NAV over the first seven-year term.
NAV is the current market value of a fund’s net assets divided by the number of outstanding shares.
Insurance companies have to maintain additional reserves to offer such guarantees. Most firms set aside 0.5-1(%) per cent of investments as reserves. This extra capital is maintained over and above the solvency requirement prescribed by the insurance regulator.
These new products are also facing problems because of an additional layer of scrutiny. Products now have to go through actuarial, life and finance departments. Earlier, only actuarial and life departments use to approve products.
“New products are facing difficulty in getting clearance, since a new department has been added. If it is an investment-related product, then it goes to the finance department. The actuarial department use to go through the mechanism earlier,” explained G N Agarwal, appointed actuary at Future Generali.
Before the new department was added, a few insurers — including SBI Life Insurance and HDFC Standard Life — launched Ulips guaranteeing the highest NAV. While SBI Life’s product is called Smart Performer, HDFC’s is branded HDFC Standard Life Crest.
Life Insurance Corporation of India collected a record Rs15,000 crore from Wealth Plus, its guaranteed NAV product. The plan offers payment of fund value at the end of the policy term, based on highest NAV over the first seven years of the policy or NAV applicable at the end of the term, whichever is higher, according to LIC’s website.

Insurance IPOs doubtful till hike in FDI limit

Listing plans of life insurance companies may take longer, with the delay in raising the foreign direct investment (FDI) cap to 49 per cent from the present 26 per cent.
According to a study by HSBC, insurance companies may not go for an initial public offer (IPO) till the FDI limit was raised
“Political winds have changed in recent weeks and the FDI limit increase was not tabled in the monsoon session of Parliament as expected. Indian insurance IPOs are unlikely until the FDI limit is raised, as the foreign partner understandably prefers to raise their stake ‘off market’ first,” the report said.
At present, insurance companies may list only after completing 10 years of operation. HDFC Standard Life will be the first since the sector was opened to complete 10 years, this October, while ICICI Prudential will do so in November. Birla Sun Life will be eligible to tap the public market in January and SBI Life, promoted by the country’s largest bank, can do so by March.
“We do not see the current grey requirement of a 10-year track record as an immovable object… The vast majority of insurers we met seemed keen to do an IPO once regulations permit, owing to a desire to raise capital and/or establish a price discovery mechanism,” the report said.
Foreign partners are interested in increasing their stake from 26 per cent to 49 per cent once the FDI limit is raised. “Then, both the local promoter and the foreign partner would sell down equally in any IPO to meet Sebi’s (the regulator) recently introduced 25 per cent minimum free float,” the report said.
While most insurance companies have agreed to a fair market price at which foreign partners can increase their stake, Allianz has set a price with Bajaj to raise its stake.
Valuations, however, will be subject to negotiation, with each partner appointing an investment bank to hammer out the deal. Most Indian insurers have not disclosed their embedded value (EV) or the valuation of a company in the absence of a standard industry norm. Three insurers — HDFC Standard Life, Max New York Life and Birla Sun Life — have disclosed their EV.