HDFC Ergo sees capital infusion of Rs 80 cr

Private sector general insurer HDFC Ergo is likely to see a capital infusion of around Rs 80 crore in the next one-and-a-half years to support business growth.

"We may need a capital infusion of around Rs 25-30 crore in the current fiscal, as around Rs 75 crore has already been infused into the insurance firm. Similarly, we will require around Rs 50 crore in the next fiscal," chief executive officer Ritesh Kumar said here.

Promoters of the general insurance firm, namely premier mortgage lender HDFC and Germany's Ergo International, have already pumped in around Rs 75 crore in the first half of this financial year. The firm has an equity capital base of Rs 500 crore as of now, he said.

Kumar said the company would not require huge capital from the promoters in future as it had turned profitable on entity level from the last quarter.

"We don't need large support from the promoters, as the growth can be funded from internal accruals," he added.

HDFC Ergo posted net profit at Rs 14 crore in the April-June quarter and is expecting to retain profit for the whole year. "We hope that profitability will be sustained in the rest half of the year," Kumar said.

On the premium front, the general insurance firm has set a target of 35-40 per cent premium growth for this year.

"We had a premium collection of Rs 1,300 crore in the last fiscal and we aim to have 35-40 per cent growth in premium in the current fiscal," Kumar said, adding the insurer witnessed 44 per cent growth in premium collection in H1 of FY12.

HDFC Ergo draws around a third of its revenue from accident and health insurance segments, a third from motor insurance and the rest from corporates. "Growth in all segments is good. However, there are issues relating to third party motor pool, which is a concern for all general life insurance companies," Kumar added.

Irda may allow agents to sell products of more than one insurance company

The Insurance Regulatory and Development Authority (Irda) plans to allow agents to sell products of more than one insurance company, allowing private insurers to access the vast army of agents selling products of the market leader - the Life Insurance Corporation (LIC).

Agents can sell products of only one insurer under existing norms, but Irda Chairman J Hari Narayan said the current global trend was to do way with tied agents, who can retail products of only one company. "The idea is to allow agents to sell products of more than one company. This model has been tried in Hong Kong. In England, tied agents have vanished," he said.

The capping of charges on unit-linked insurance plans (Ulips) in September 2010 had reduced the income of agents, resulting in many exiting the sector and forcing the regulator to consider opening up alternative avenues of income.

More than 3 lakh agents have exited the insurance business after the regulator introduced stringent norms.

The new norms led to more than 100 products becoming ineligible. The number of agents came down from 3 million in 2009-10 to 2.65 million in 2010-11, according to data compiled by the Life Insurance Council. LIC has 13.5 lakh agents distributing its products.

"The move will increase earnings of agents. Though consumers buy Ulips of private insurers, when it comes to life products they only go for LIC. This would help us bolster our sales," said Renu Dhavan, an agent with ICICI Prudential.

Private insurers have largely followed the bancassurance model, in which banks distribute insurance products. However, access to LIC agents, particularly the bigger ones, will increase the reach of private insurance companies.

LIC had a market share of around 76% in terms of new business premium for the financial year up to August 2011 while the remaining was divided among 23 private insurance companies. The state-owned insurer has been increasing its market share mainly because of its strong base of traditional products, which were unaffected by the change in regulations, and its group retirement plans.

New Norms

The new regulations introduced a year ago increased the lock-in period and quantum of life insurance cover while capping charges that could be paid out as commission to agents.

Before September 2010, bulk of the premium paid in the first year was passed on by the insurer as commission to the agent responsible for bringing in the client. This created an incentive to sell new policies while existing ones were often surrendered after the initial years.

The intent of the new rules was to encourage consumers to buy more protection against accident or death. The Indian insurance market is dominated by Ulips -investment products with a nominal life cover that compete with mutual funds.

Irda had also made it mandatory for agents to retain 50% of their business in the second year.

This regulation, known as persistency norms, refers to the percentage of business retained without lapsing or being surrendered.

Many agents have found it difficult to meet these norms and operate in a scenario where the commission payable has come down.

The difficulties being experienced by agents were one reason for the insurance regulator to consider allowing them to diversify their portfolio.

IRDA plans end to deceptive policies, upfront commission

The Insurance Regulatory and Development Authority (IRDA) plans to ban misleading products and staggered commission for agents to ensure that policy buyers are not shortchanged.

The insurance industry, which is still evolving a decade after privatisation, needs new rules to ensure that consumers get the best and don't get carried away by products that only promise high returns on paper, the regulator has said.

"One important problem is that what you mean by highest NAV,'' J Hari Narayan, chairman, IRDA, told ET in an interview, referring to many insurers promising highest net asset value of the policy period to holders. "In certain markets, certain products are prohibited. That may be the best way to go.''

Insurance companies, bitten by the slump in sales after new rules curbing the Unit Linked Insurance Policies, are peddling many policies that on close scrutiny could be termed deceptive. One such is the promise of highest net asset value. But what they do not publicise is the calculation behind the NAV. These policies also charge 25 to 75 basis points as additional fees. A basis point is 0.01 percentage point.

"Suppose a company had Tata in its portfolio, over time it may change,'' said Narayan. "At the time of maturity, which highest NAV are you talking about - the portfolio, or Tata. One of the major problems with the product is that how do you communicate to the policyholder. He may be thinking of the highest NAV of the Sensex. So, this is the whole issue.''

Prudential ICICI, Birla Sun Life, Bajaj Allianz, SBI Life, Reliance and Aegon Religare are some of the insurance companies that sell policies promising the highest NAV. These policies have tenure of 10 years with limited premium paying term of 5-7 years.


Though the highest NAV guarantee gives the impression that such products are pure equity products and pay the highest return during the course of the tenure, that is not always the case. When a 100 investment gains by 10-15%, a portion of the corpus is shifted to debt. At regular intervals, when there are gains, some funds are shifted to fixed income securities.

In a way, this could be a strategy where investors don't get the highest NAV they would have received if they had remained invested in equties. The portfolio manager, to avoid liabilities for the company, could actually depress returns for investors.

Another area where investors lose out, commission to agents, could also be plugged.

As high as 40% of the policy premium in the first year on traditional products while 7-12% in Ulips, are paid to agents as commisssion. But once the policy gets running, the agent loses interest in serving the policy holder. So, to ensure that customers are serviced, the commissions could be rear-ended and paid at the later stages of the policy, than in early years.

"Korea has found that front-ending commissions has led to unhealthy practices. So, the question is should we rear end it. A lot depends on the sales history and culture of the country,'' Narayan added.

Rs 9 crore insurance cover for Sunday's ODI

Unseasonal showers and the July 13 serial blasts in Mumbai have forced the Mumbai Cricket Association (MCA) to buy an insurance cover of Rs 9 crore for the India-England one-day international at Wankhede stadium on Sunday.

Sources said MCA will shell out a premium of Rs 5 lakh for a special contingency policy for event cancellation from Oriental Insurance Company (OIC). The policy will protect MCA against financial losses owing to cancellation of matches due to bad weather, natural disasters, terrorism-related incidents or abandonment due to death of a prime minister or president. The cricket association cannot claim compensation if a ball is bowled before the match is called off.

"The cover for the India-England ODI is higher by Rs 1 crore compared to the policy for the India-Australia bilateral series match at D Y Patil Stadium on November 11, 2009," he added.

The India-Australia match was abandoned without a ball being bowled due to incessant rain. A source said, "There has been an increase in premium of the reinsurance market by at least 40% in the past six months. The local insurance company that offers the cover for such events has to peg the premium rates with those prevailing in the reinsurance market."

India is bracketed under the 'extreme risk category' in the terror index of the reinsurance market. The country's record in the terror index got further sullied following the July blasts in Mumbai in July and the bomb blast outside the Delhi high court last month.

Last week, the Anti-Terrorism Squad received an alert of plans to target the Chhatrapati Shivaji international airport on the eve of Diwali. Leander Dias, OIC administrative officer, said, "We cannot disclose financial figures to the media as these are confidential matters."

Apart from terror, rain is a major concern for cricket administrators. The earliest the monsoon withdrew from Mumbai in the last few years was October 7 in 2005. It withdrew as late as October 24 last year.

An insurance official said, "MCA is wary about the weather as the rain refuses to go away. They don't want to take chances as the India-Australia match had met a similar fate."

Bajaj FinServ's Q2 net more than doubles to Rs 158 cr

The life insurance industry, which has witnessed a slowdown this year, will see a revival in top-line growth in the third quarter of this year, said Mr Sanjiv Bajaj, Managing Director, Bajaj FinServ.

Bajaj Finserv is the holding company and the financial services and insurance business arm of the Bajaj Group.

“We are looking to revitalise the agency and the bancassurance channels for the insurance business. Since April, we have added over 10,000 new active agents. We see them bringing in additional business now in the third quarter this year,” added Mr Bajaj.

Bajaj Finserv, which reported its second quarter results on Wednesday, has more than doubled its profits to Rs 158 crore from Rs 69 crore in the corresponding previous-year period.

GROWTH IN SUBSIDIARIES

The strong results in the second quarter of this year are attributed to the robust numbers reported by its subsidiary companies.

The profit from Bajaj Allianz Life Insurance surged by 48 per cent to Rs 295 crore from Rs 199 crore, while Bajaj General Insurance's profit surged by 83 per cent to Rs. 64 crore from Rs 35 crore.

BAJAJ FINANCE

Bajaj Finance Ltd, the lending arm of Bajaj Finserv, has also reported a jump in profit by 64 per cent to Rs 87 crore from Rs 53 crore. Bajaj Finance's Assets Under Management (AUM) has crossed the Rs 10,000-crore mark and stood at Rs 10,071 crore as on September 30, 2011, as against Rs 7,571 crore as on September 30, 2010.

Shares of the company gained Rs 15.3, or 2.9 per cent, to settle at Rs 543.55. The total volume of shares traded on the BSE was 101,571.

Life insurers may get nod to raise non-AAA exposure

The Insurance Regulatory and Development Authority (Irda) plans to allow life insurers to buy a greater amount of non-AAA corporate debt, which could lead to higher returns for insurance policyholders.

A member of an Irda-instituted committee, looking into the investment guidelines of insurers, said it had decided to include government bonds as part of the AAA-rated investment requirement, enabling insurance firms to take additional exposure to non-AAA-rated securities, including A+ and A papers, by taking board approval.

The panel's move is a part of an exercise to amend the Insurance Act.

The move by the regulator could generate more returns for policy holders as lower the rating on a paper, the higher will be the yield that an investor earns.

It will also widen the investment horizon for insurers and make more funds available to companies that don't have the highest rating, but are credit-worthy.

"We want more money to flow into corporate bond market. The draft guidelines are sent to companies, consultants and other stakeholders for their feedback. It will become a law after the (Insurance) Act is amended," said a senior Irda official.

Insurance companies are now allowed to invest up to 50% in government securities, 15% in infrastructure bonds and 35% in other investment grade corporate bonds and equities. A minimum of 75% of debt instruments must carry triple A rating.

If investments in government bonds become part of the AAA calculations, the maximum permissible investment in non-AAA papers will rise to 25 per 100, assuming that the entire investment is in debt instrument, up from the current 17.50.

"It will give some additional exposure to debt papers," said the chief investment officer of a large life insurance company.

The rating assigned to a bond by credit rating agencies indicates its issuer's degree of creditworthiness and ability to meet financial commitments.

Bonds rated AAA, which is the highest possible rating, are perceived to have little risk of default and offer investors the lowest yields among bonds of comparable maturity.

Life insurance companies had 9,53, 052 crore investment in fixed income instruments as on March-end.

DLF Pramerica Life Launched U-protect term plan

DLF Pramerica Life Insurance has launched a pure term insurance plan that provides higher life protection cover at an affordable premium, especially for women. Premium rates are substantially lower for women, making the plan, U-protect, particularly attractive for women customers, the company said.

While the minimum sum assured in the plan is Rs 25, 00,000, the consumer can take additional riders for accidental death benefit or critical illness, it said.

"With a minimum annual premium of Rs 4,000, U-protect are affordable for customers across multiple income groups," DLF Pramerica Life managing director and CEO Pavan Dhamija said.

The company is a joint venture between realty major DLF and Prudential International Insurance. It started operations in 2008 and operates 40 branch offices and 86 branch units across Delhi, Haryana, Punjab and Gujarat.