Insurance Sector Poised For 200% Growth To Touch Rs. 2000 Bln By 2010

Indian insurance sector is likely to register unprecedented growth of 200% and attain a size of Rs. 2000 billion by 2009-10, in which a private sector insurance business will achieve a growth rate of 140% as a result of aggressive marketing technique being adopted by them against 35-40% growth rate of state owned insurance companies. The aforesaid findings are made by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) on `Insurance in Next 2 Years’, saying that in the last couple of years, the insurance sector has grown by CAGR of around 175% and the trend will emerge still better because of potential factor. Currently, the insurance sector size is estimated at Rs.500 billion. On account of intense marketing strategies adopted by private insurance players, the market share of state owned insurance companies like GIC, LIC and others have come down to 70% in last 4-5 years from over 97%. The private insurance players despite the sector is still regulated has been offering rate of return (RoR) to its policy holders which is estimated at about 35% as against 20% of domestic insurance companies. This factor is mainly responsible for hike in private insurance market share which will grow further which is why the ASSOCHAM estimates that its growth rate could even exceed 140%. Secondly, the state owned insurance companies such as LIC and GIC have limited number of policies to offer to their subscribers while in case of private insurance companies, their policy numbers are many more and the premium amount as well as the maturity period is much competitive as against those of government insurance companies. Interestingly, said Mr. Dhoot that the private sector insurance players have started exploring the rural markets in which until recently, the state owned companies had the monopoly. The Chamber has projected that in rural markets, the share of private insurance players would increase substantially as these have been able to generate a faith among their rural consumers. Estimating the potential of the Indian insurance market from the perspective of macro-economic variables such as the ratio of premium to GDP, ASSOCHAM reveals that India’s life insurance premium, as a percentage of GDP is 1.8% against 5.2% in the US, 6.5% in the UK or 8% in South Korea.more….

MUMBAI: Come April 2010, keeping money in your savings bank (SB) account will earn more for you than today. You will earn more even if the 

government does not change the existing rate of interest 3.5% per annum that banks pay you today. The higher income will accrue because RBI will switch to calculating the interest on SB accounts to a daily balance basis. 

The banking industry believes this change will benefit crores of people. The new method is a substantial departure from the current practice, whereby interest is calculated on the minimum balances held in these accounts from the 10th of each month to the last day of the same month. 

RBI governor D Subbarao on Tuesday clarified that as of now there was no change in the rate of interest (3.5%) for keeping money in SB accounts, which is set by the government. It is only the method of calculating the interest income that will change from the next financial year. 

This is how the new calculation will work: Suppose you have Rs 50,000 in your SB account on April 1, 2010. Now you spend Rs 20,000 on April 9, and withdraw another Rs 10,000 on April 25. So you have a month-end balance of Rs 20,000. 

Under the current system, the bank calculates your interest earnings only on your month-end balance, i.e. Rs 20,000, although it will be free to use all the money that was in your SB account throughout the month. Even though you had Rs 50,000 during the first nine days, and Rs 30,000 till April 24, the bank does not pay you any interest on the full amount. Also if you deposit any money into your account between April 10 and April 30, the bank does not pay any interest. 

In the new system, however, bank will calculate your interest earning based on your balance amount at the end of each day. So in the above case, till April 8, you will get interest on Rs 50,000, from April 9-25 on Rs 30,000, and from April 25-30 on Rs 20,000. Also if you deposit any money into your account at any time of the month, you will earn interest from the next day onwards. 

Speaking to TOI, Roopa Kudva, Crisil MD & CEO, said this was an important decision on the part of the central bank that would benefit a large number of individuals. “In a country where there is no social security and a large number of retired people depend on interest income for their livelihood, this will mean some extra interest income, that too in a falling interest rate regime.” 

In its annual policy statement, the RBI said that since computerisation of banking operations had reached a satisfactory level, it proposed that payment of interest on savings bank accounts by scheduled commercial banks (SCBs) be calculated on a daily product basis with effect from April 1, 2010. The central bank, in consultation with the banks, will work out the modalities.

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NSC INVESTMENT – 0NE 0F THE OPTIONS

National Savings Certificate

 

National Savings Certificate, popularly known as NSC, is a time-tested tax saving instrument that combines adequate returns with high safety. NSCs are an instrument for facilitating long-term savings. A large chunk of middle class families use NSCs for saving on their tax, getting double benefits. They not only save tax on their hard-earned income but also make an investment which are sure to give good and safe returns.

How to Invest
National Savings Certificates are available at all post-offices. The application can be made either in person or through an agent. Post office agents are active in nooks and corners of the country. Following types of NSC are issued:

• Single Holder Type Certificate: This can be issued to: (a) An adult for himself or on behalf of a minor (b) A Trust.
• Joint ‘A’ Type Certificate: Issued jointly to two adults payable to both holders jointly or to the survivor.
• Joint ‘B’ Type Certificate: Issued jointly to two adults payable to either of the holders or to the survivor.

Who can Invest

• An adult in his own name or on behalf of a minor
• A trust
• Two adults jointly

Denomiations and Limit
National Savings Certificates are available in the denominations of Rs. 100 Rs 500, Rs. 1000, Rs. 5000, & Rs. 10,000. There is no maximum limit on the purchase of the certificates. So it is for you to decide how much you want to put in the NSCs. This is of course a huge benefit for you can decide as much as your budget allows.

Maturity
Period of maturity of a certificate is six years. Presently interest paid is 8 % per annum half yearly compounded. Maturity value of a certificate of any other denomination is at proportionate rate. Premature encashment of the certificate is not permissible except at a discount in the case of death of the holder(s), forfeiture by a pledgee and when ordered by a court of law.

Tax Benefits

• Interest accrued on the certificates every year is liable to income tax but deemed to have been reinvested.
• Income Tax rebate is available on the amount invested and interest accruing under Section 88 of Income Tax Act, as amended from time to time.
• Income tax relief is also available on the interest earned as per limits fixed vide section 80L of Income Tax, as amended from time to time.

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LIC HISTORY

The Life Insurance Corporation (LIC) of India founded in 1956 is the largest life insurance company in India owned solely by the Government of India. Headquartered in Mumbai, which is considered the financial capital of India, LIC presently has 7 Zonal Offices and 100 Divisional Offices situated all around the country. In addition to an even distribution of 2048 branches located in different towns and cities of India,LIC also has a network of around one million agents who solicit life insurance policies to the public. 

History of LIC of India 

The first 150 years of the British Rule in India were characterized by turbulent economic conditions. The first war of independence in 1857, the World Wars 1 and 2 (1914-1918 and 1939-45) and India’s national struggle for freedom in between had adverse effect on the economy. In addition to this the period of world wide economic crisis in between the two World Wars termed as the period of Great Depression led to the high rate of bankruptcies and liquidation of most Life Insurance Companies in India that existed during that time. These occurrences led to loss of faith in insurance of the people of India. 

The Life Insurance Companies Act and Provident Fund Act both passed in 1912 provided regulatory mechanisms to the Life Insurance Industry in India for the first time. After undergoing several other such reforms in the following decades and nearly a decade after India achieved independence, the Parliament of India passed the Life Insurance of India Act on 19 th June, 1956 following which the Life Insurance Corporation (LIC) of India on 1 st September of the same year. The Company began its operations with 5Zonal Offices , 33 Divisional Offices and 212 Branch Offices . 

Present Status of LIC of India 

Existing as a towering insurance company for over 50 years, LIC has acquired almost monopoly power in the solicitation and sale of life insurance policies in India. In addition to the summary regarding the present stature provided at the beginning, LIC has extended its activities in 12 countries other than India with the objective of catering to the insurance needs of Non Resident Indians. 

The enforcement of New Economic Reforms in 1991 coupled with the formation of Insurance Regulatory and Development Authority Act (IRDA) of 2000 (which started issuing licenses to private life insurers ) has diluted the monopolistic attitude commanded by LIC. The only insurance company belonging to the public sector now has to compete with several other corporate entities of its kind which often are heavyweight Indian as well as Multinational Life Insurance Brands in themselves. 

The other subsidiary companies under LIC are:

• Life Insurance Corporation (LIC) of India International - A joint venture offshore company promoted by LIC which commenced its operations in July, 1989 with the objective of offering policies denominated in US $ to NRIs residing in the Gulf.
• LIC Nepal - Formed in 2001 in joint venture with Vishal Group of Industries, Nepal.
• LIC Lanka - Formed in 2003 in joint venture with Bartleet Group of Companies, Sri Lanka
• LIC Housing Finance - Established in 19 th June,1989 in Dubai with the objective of providing long term finance for construction of houses or apartments.
• LIC Housing Finance Limited Care Homes - A wholly owned subsidiary of LIC Housing Financewhich builds “Assisted Community Living Centers” for senior citizens.

With its ever-expanding operations, LIC has set an example for other Public Sector Undertakings of Indiato follow.

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Life insurance agents may get service tax relief

Mumbai: Life insurance agents are likely to be exempted from payment of service tax if their total annual commission income does not exceed Rs 8 lakh.

Though in principle the notification dated March 1, 2005, exempts from tax, services of aggregate value not exceeding Rs 8 lakh in a year (which brings into the ambit around 90 per cent of the 20 lakh life insurance agents in the country), the benefit of the exemption is not extended to insurance companies that pay the tax on behalf of their agents.

According to industry sources, this differential treatment of life insurance auxiliary services may get corrected in the 2008-09 Union Budget.

For service tax on insurance commission (services rendered by an insurance agent to an insurer), the responsibility of paying the tax rests with the insurance company (service recipient).

The benefit of exemption up to the threshold limit is not extended to such cases where service tax is paid by the recipient of service on behalf of the provider of service.

While the responsibility of actual payment of service tax lies with the service recipient (insurance company), the benefit of exemption up to the threshold limit is not available to insurance agents (and insurance companies).

In the case of life insurance agents, the service tax (12.36 per cent) is paid by insurance companies which then deduct the amount from the commission of their agents.

So even though most life insurance agents in principle are exempted from service tax (as the commission earnings are below Rs 8 lakh), they are not getting the benefit as it is not extended to insurance companies.

Life insurers have made a submission to the finance ministry, requesting that “the benefit of service tax exemption below the threshold limit of Rs 8,00,000 in a year may be extended to all service providers such as insurance agents, notwithstanding that the actual remittance of the tax is made by the principal, namely, the insurance company, which is in fact a procedure to ensure efficiency of collection.”

Says Sachin Menon, executive director, indirect tax, PricewaterhouseCoopers, “It’s unfair to deny the threshold exemption to insurance agents who constitute 90 per cent of the total agents across the country.”

Source: Business Standard
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LIC ups stake in ICICI Bank to 9.38 pct

Mumbai: Life Insurance Corporation of India has hiked its stake to 9.38 per cent in the country’s largest private sector lender, ICICI Bank, after purchasing shares worth Rs 145.62 crore through open market transaction.

In a disclosure on the Bombay Stock Exchange, ICICI Bank said LIC has purchased over 2.27 crore shares for Rs 145.62 crore, representing 2.04 per cent stake.

Before the purchase, LIC held 7.34 per cent stake, while now it has over 10.44 crore shares representing 9.38 per cent stake in the bank.

Shares of ICICI Bank were trading at Rs 232.90, down 3.59 per cent on the BSE on Tues day.

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No special dispensation for LIC in new investment norms

Hyderabad, Aug. 28 The new investment norms announced by the Insurance Regulatory and Development Authority (IRDA) will apply to all entities in the insurance industry, including Life Insurance Corporation (LIC).

However, LIC may bring down its stake to less than 10 per cent in individual companies in a phased manner and there is no immediate ‘deadline’ to do so, the IRDA has said.

“While adherence to the 10-per cent cap is mandatory for LIC as an industry player, the modalities can be worked out by dialogue between the regulator and LIC,” Mr C.R. Muralidharan, Member (Finance & Accounts), IRDA, told newspersons on the sidelines of a meeting here on Thursday.

It may be noted that according to the recently-revised norms on investment by the insurers, IRDA has imposed a cap of 10 per cent (of the outstanding shares of the company/fund size) on the investment in a single company. The State life insurer has investments ranging from over 10 per cent to 30 per cent in more than a dozen corporate entities, including Corporation Bank and Reliance Infrastructure Ltd.

The dilution of investments made prior to the announcement of new norms could be brought down in a manner that would not harm the interests of the shareholders or the markets. “The corporations should adhere to the norms in the new investments to be made henceforth,” he said.

INCIDENTAL ISSUE
Stating that the decision to impose a 10-per cent cap was taken in consultation with the industry (including LIC), the IRDA member said the move was “not LIC-centric, but it is affected incidentally.”
The objective is to facilitate a larger flow of funds to market and to provide a level-playing field. “Ideally the insurers should broaden their focus of investments to a wide range of instruments, such as mortgage-backed securities, among others,” Mr Muralidharan said.

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LIC’s investment in MFs rises 3-fold

After banks, it’s the country’s largest insurer Life Insurance Corporation of India (LIC) that has come to the aid of cash-strapped mutual funds (MFs), which are reeling under redemption pressure on liquid and fixed maturity plans (FMPs).

The public-sector insurer has pumped in over Rs 14,000 crore into liquid funds of various fund houses. This is more than three times its investment of around Rs 4,500 crore in such instruments last year.

“Last year, conditions were better. But this year, mutual funds have been facing huge redemption pressure, especially on FMPs and money market funds. These funds approached us and we have parked money across 10 top fund houses. Our investments in funds remain within the regulations of the Insurance Regulatory and Development Authority (Irda),” said LIC Managing Director Thomas Mathew.

It could not be ascertained as to how much the corporation has invested in its own mutual fund arm, LIC Mutual Fund.

According to Irda norms, LIC can invest 50 per cent in government securities, 15 per cent in the infrastructure sector, and the remaining 35 per cent in other channels, including equity, mutual funds, fixed deposits, non-convertible debentures, certificate of deposits, and commercial papers.

Liquid or money market funds earn returns in the range of 10-12 per cent. LIC parks money in short- term liquid funds and FMPs, where the average tenure varies from two weeks to a month.
“Liquid funds and collateralised borrowing and lending obligation (CBLO) form the majority of our money market investments,” Mathew said.

While CBLO investments are very short-term in nature, money in liquid funds can be invested either on a cumulative basis or can be redeemed and switched to other instruments.

Coming to the rescue of cash-starved fund houses, the Reserve Bank of India (RBI) had opened a special 14-day repo window on October 14, through which banks could raise up to Rs 20,000 crore and lend to mutual funds to tide over the liquidity crunch. In November, a similar window was opened for non-banking finance companies (NBFCs).

The country’s largest lender, State Bank of India, has already extended loans worth over Rs 5,000 crore to help mutual funds.

In addition to mutual funds, the public sector insurer has also invested around Rs 1,000 crore in bank fixed deposits in April-November this year.

“Banks look for bulk deposits in such times. We responded by investing money in their FDs, where the tenures vary from six months to one year,” explained Mathew.

With credit demand rising following problems in the US, banks raised deposits to tide over the pressure. From the start of the month, public sector lenders have, however, decided against accepting bulk deposits.

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Insurance Bills against India’s interests, says AIIEA

HYDERABAD: “People’s money for people’s welfare is our motto. Funds mobilised from people should be invested for public cause,” according to K. Venugopal, general secretary of All-India Insurance Employees’ Association (AIIEA), the largest employee’s union in the country.

“In spite of the bitter global experience in the wake of the economic meltdown, the government is going ahead with the two Bills that are detrimental to the country’s interests,” said Mr. Venugopal in an interview here on Tuesday.
He strongly opposed the two insurance Bills introduced in Parliament. “Insurance should be the natural monopoly of the public sector. Increase in FDI from 26 per cent to 49 per cent would result in more control of foreign capital on domestic savings.”

“We believe that the domestic savings accounting for 36 per cent of the gross domestic product of the country plays a major role in the development of infrastructure needed for a growing economy. LIC contributed Rs.4.80 lakh crore to Central and State sectors and infrastructure investment,” he said. Increasing the share capital of LIC from Rs.5 crore to Rs.100 crore might not stop at that, and this would also lead to disinvestment. The companies which wanted their foreign investment to be raised were themselves failed insurance companies in their respective countries.

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LIC to raise Rs 25K cr from new scheme

After a long gap, Life Insurance Corporation (LIC) has launched a fresh assured return scheme, from which it hopes to raise nearly Rs 25,000 crore from the market and increase its market share among traditional insurance products.

The scheme offers more than a ten per cent return, at a time when market turbulence has left investors wary of equity linked insurance products.

LIC hopes to mop up nearly Rs 25,000 crore from this scheme, over the 45-day period that the scheme will be open.

The funds from the new scheme will only add to LIC’s investment kitty that already stands at a massive Rs 1.5 lakh crore.

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