About Me

My photo
Trichy, Tamil Nadu, India
Working as an Assistant in LIC of India, Rockfort BO, Trichy, TN. Having a strong belief that LIC's welfare is our welfare and always trying to work towards that. Also functioning as an office bearer of AIIEA Thanjavur Division.

Sunday, November 28, 2010

LIC's new premium crosses Rs 50,000 crore during Apr-Oct

The new premiums of country's largest insurer Life Insurance Corporation (LIC) has breached the Rs 50,000-crore mark during April-October period this year, an increase of 66 per cent from the corresponding period last fiscal. 

In the first seven months of the current fiscal, LIC's new premium stood at Rs 50,605 crore compared to Rs 30,469 crore during the same period last year, Insurance Regulatory and Development Authority (IRDA) said in its monthly data. 

Overall, the life insurance industry mopped up new premium of Rs 69,706 crore during April-October this year, up from Rs 46,689 crore in the corresponding period last fiscal. (49.29%)

The 22 private life insurers have collected Rs 19,099 crore in the first seven months of 2010-11, up from Rs 16,217 crore in the same period last fiscal. (17.77%)

Among private insurers, ICICI Prudential has collected the maximum Rs 3,639 crore new premium during April-October period this year, an increase of 40 per cent from the first seven months of 2009-10.          

During April-October last year, ICICI Prudential mopped up Rs 2,586 crore new premium. 

SBI Life has collected Rs 3,538 crore in the first seven months of the current fiscal, up from Rs 3,073 crore during the corresponding period last year. 

Similarly, new premium of Reliance Life grew to Rs 1,617 crore during April-October this year from Rs 1,498 crore during the same period in 2009-10. 

On the other hand, the premium of non-life or general insurance industry grew over 22 per cent during April-October period this year. 

The 18 insurers mopped up Rs 24,161 crore premium in the first seven months of the current fiscal from Rs 19,680 crore in the corresponding period last year. 

Out of Rs 24,161 crore, the four public insurers -- New India, National, United India and Oriental -- collected Rs 14,089 crore in the first seven months of the current fiscal. 

During the corresponding period last year, these state-run insurers mopped up Rs 11,635 crore premium.       

Source: ET

Isn't the policyholders' money with LIC safe?

Media is pointing entirely towards LIC for the downfall of Stock Markets during the past few days.  Campaign is going on as if the safety of policyholders' money with LIC is under threat and LIC is amidst a mega scam.  What is really happening?

There were some wrongdoings happened at LIC HFL. LIC  didn't refuse it and took firm actions immediately.  New Chief Executive (Mr.V.K.Sharma) has been appointed and the necessary actions on the culprits were assured according to the staff regulations apart from the actions from the side of CBI and other agencies.  What is worth to highlight here is the swift of action of the LIC Management.  All actions have been taken on the very next day and the Chairman of LIC visited and explained the safe position of LIC to the Finance Ministry.  Is any other Public Sector or Government organisation having the guts to call for a Board Meeting in less than a day's time and take this much firm actions?  That shows the strength of the LIC!  And that strength itself made the supporters of private sector afraid of LIC and to cry as if there is a mega scam!

LIC HFL is one of the very large number of Companies in which LIC has invested.  The difference here is that LIC is the promoter.  That's all!  So the argument that any wrong doing at LIC HFL is at LIC itself is baseless and purposeful.

The money at LIC HFL is still safe even though there were some wrongdoings! Yes, the percentage of NPA (Non-Performing Assets or for easy understanding those loans could not be recovered) is at 0.84% in the case of retail sector, that is loans given to individuals!  Actually it is accused as some fraud has taken place under Corporate Segment.  But the NPA under corporate portfolio is at 0.08% much lower than that of the individual portfolio of LIC HFL itself and very much lower than the industry average!! (Source: Businessline

Secretary Investments of LIC was also arrested, so what happened on the part of LIC?
Go through the lines from DNA:
The Economic Offences Wing (EOW) of the Central Bureau of Investigation (CBI) suspect that price sensitive information was leaked about block deals entered into by the Life Insurance Corporation (LIC) involving at least eight of the beneficiary companies named in the FIR of the multi-crore housing loan scam. 
Block deal is defined as a single transaction of a share lot of five lakh shares or of Rs5 crore, said an expert.
Explaining the modus operandi employed by the suspects, CBI sources revealed that the planning about block investment made by LIC in the particular stock would be leaked by Naresh Chopra, secretary (Investment), LIC, to Rajesh Sharma of Money Matters (India) Pvt Ltd.
“The investment plans of the companies are meant to be kept secret as it involves the company’s strategic investment of the shareholder’s money,” a source said.
Sharma, who was in close contact with Chopra, would then selectively pass on this price sensitive information to other market participants.
As the news of LIC, the single-largest insurance company, investing in these firms reaches the market, the value of their shares would increase and that would lead to huge profits in the stock market. “We have enough proof to back our claims,” said a senior CBI officer. (Source: DNA)
That's why the Chairman of LIC told that the housing finance racket involved only individual officers who will be taken care of by the CBI and LIC is VERY STRONG! "Scam means somebody is misusing money... somebody is losing money... these are false schemes. It is proven that they (arrested by the CBI) are individuals who are charged by CBI. That (legal procedure) will take its own course", he added! (Source : ET)
Nothing more than that and all the others are rumors!
Explain to all!!

Irda slaps Rs 5 lakh fine on Tata AIG

TATA AIG Life's Expenses of Management for the years
2008-09 is 114.90%
2009-10 is 117.28%
i.e. the Co. is spending more money than it's premium collection, it seems. 
Can a company, which spends more than it collects, repay the money to policyholders? 
Explain to your clients and friends!

The Insurance Regulatory and Development Authority (Irda) has slapped a fine of Rs 5 lakh on Tata AIG Life Insurance for alleged violation of regulatory guidelines.

In an order, Irda said Tata AIG Life's expenses of management crossed the prescribed limit in 2008-09, following which the regulator had asked the insurance firm to ensure convergence with regulatory norms. 

But the EoM statement submitted by Tata AIG Life for 2009-10 indicated that the company did not follow the regulator's directive. 

"This is a violation of Irda’s direction...,” the order said. Accordingly, the company has been directed to pay a penalty of Rs 5 lakh within 10 days.

The Irda order pointed out that Tata AIG Life went on an expansion spree by opening branches in 2009-10, even though it had assured Irda that it would restrict its expenses.

“Contrary to the directions of the authority and assurances provided by the company to the authority while requesting for approval to open new branches offices in 2009-10, Tata AIG has not complied with the limits on EoM,” it said. 
Courtesy: MoneyGuru

Tuesday, November 23, 2010

No real cash shortage, LIC did not violate rules: IRDA

The Insurance Regulatory and Development Authority's (IRDA) probe into the alleged violation of rules by the Life Insurance Corporation of India (LIC), pertaining to transfer of profits among its schemes, has revealed that no violation was committed, IRDA chairman J Harinarayan said here on Friday.

"There are no violations by LIC. There is an actuarial shortage as to the current actuarial estimates, which is not a real cash shortage," the IRDA chief said.

"They (LIC) project the gap between the assets and liabilities assuming a certain pattern of liability and a certain generation of income from investments made. And on that basis, they count it backwards, discount it appropriately and so there seems to be this much (Rs 14,000 crore)," he explained.

According to the IRDA chief, the actual cash disparity could be much less than the initially estimated Rs 14,000 crore. "The actual cash disparity could be of the order of Rs 300-400 crore per year. It is entirely possible that in years to come this imbalance is rectified so at the moment there is no cause for concern," he said, explaining that LIC generates a lot of surplus, which technically belongs to shareholders, and could be used by LIC to meet the shortfall in cash flow.

Allaying fears about the safety of public money, Harinarayan said: "These figures are disclosed in their annual accounts and are part of their non-performing assets (NPA), which are less than 1% of the asset base at about 0.75%. So there is no need for any anxiety on this front."

Monday, November 22, 2010

LIC pension funds: the real facts


The report appeared recently in the media that the Life Insurance Corporation (LIC) suffered a notional loss of Rs.14,000 crore in three of its schemes has been cited as one of the reasons for the stock market fall on November 16. What are the real facts?
Till March 1987, the pension portfolio was just a spec in the corporation's total portfolio. In the context of rising yields on bank deposits and corporate bonds, the pension rates were unattractive. Realising the need for developing the pension business, so essential for ensuring social stability, the government requested LIC to introduce a pension plan with attractive returns. Permission was given to the corporation to invest the pension fund equally in government securities and corporate bonds.
LIC introduced two plans ? Jeevan Akshay (immediate pension) and Jeevan Dhara (deferred pension). Under Jeevan Akshay, for a single premium of, say, Rs.1 lakh, a life pension Rs.1,000 a month was guaranteed, with provision for return of the single premium on death of the policyholder. Equally attractive returns were provided under Jeevan Dhara. In 1997, LIC was directed to introduce a more comprehensive pension plan, Jeevan Suraksha.
The two plans
In the late 1980s and in the good part of 1990s, it was possible to obtain an yield of 16.5 per cent under the investment pattern permitted by the government ? much more than the minimum yield of 13.5 per cent required to meet the obligations and expenses under these plans. When the yield on investments began falling, LIC was not able to revise immediately the premium rates under these plans. However, once the Centre opened up the insurance sector, the premium and pension structures under these plans were revised and aligned with the then market conditions.
In 1987, compared to the total life fund of Rs.12,000 crore, the Pension and Annuity Fund of LIC was just Rs.350 crore. While the total Life Fund is about 100 times its value in 1987, the Pension and Annuity Fund (under linked and non-linked business) has now grown by about 300 times. It will continue to grow rapidly in the coming years and, within a decade, the fund will match the Assurance Fund in terms of size and profitability and emerge as the second arm of the corporation.
Invisible capital
Where did the capital come from for financing the development of pension fund? The with-profit (participating) policyholder contributes some additional amount, known as bonus loading, with every instalment of premium. This bonus loading is actually a contribution towards capital. This invisible capital of a life insurance company goes on increasing with continuous flow of new business. This is how LIC has been functioning with virtually no visible capital, but generating huge profits. The profits generated from deployment of capital are given back in the form of bonus along with capital at the time of exit of a policy. The assistance being extended at present from assurance business to pension business is not a subsidy. Subsidy means a non-repayable loan. On the contrary, what has been done is similar to creating a venture fund out of the capital contributed by the policyholders and using the same to finance the emerging pension business. This has not in any way harmed the interests of the past or present policyholders, but will only give high return to them in the coming years.
The pension business will start yielding rich dividends in the near future. Not only the present and future policyholders, but the entire nation will benefit from this pension fund launched two decades ago.
Equitable premiums
The profits generated, when the yield on pension funds was more than the minimum required, were not kept in a separate reserve, but merged with the total profits, a part of which was utilised to finance the rapid growth of the assurance business. Now the flow is in the opposite direction.
In life insurance, while determining the premium rates, long-term assumptions have to be made regarding various parameters. The Actuary has to ensure that the premiums charged under each plan/scheme are fair and equitable. Over the years, there will always be variations, favourable and unfavourable, between these assumptions and actual experience. While the experience under one group of policies is favourable, that under another group may be unfavourable and vice-versa. The profit or loss emerging due to such variations has to be shared by all policyholders.
Insurance companies had been functioning on this principle for more than a century. The perceived loss in the pension fund of LIC is only due to lack of understanding of this guiding principle and artificial segmentation of policies into multiple water tight compartments.
One has to understand and stick to the basic principles of insurance and desist from blindly copying whatever is happening in other countries.
-R.Ramakrishnan, Actuary.
Courtesy: The Hindu
(I am now in New Delhi, for a conference and publishing this article from laptop.  Hence, I am unable to do highlighting, etc.  Those will be added later. -Arivukkadal)

Wednesday, November 17, 2010

LIC saves government's divestment programme from disaster

Life Insurance Corporation of India (LIC) saved government's divestment programme from disaster by investing up to 11,000 crore in public sector companies last year. According to the finance ministry statistics, LIC accounts about 43 percent of the Rs 25,000 crore raised by the government from four share issues.

To save the follow-on offers of NMDC and NTPC, LIC did major investments subscribing up to 63.72 percent and 49.48 percent, respectively. But both the companies did not perform very well . Although their retail participation did not double or triple the government still earned a profit of Rs 8,000 crore through NTPC, while NMDC offer earned Rs 9,925 crore.

 "Traditionally, LIC and public sector banks have been the back-ups in any large financial crisis. The point is that it was government's money which changed coffers, nothing else," said a senior analyst with a leading consultancy firm.

The total investment by LIC so far this year is around Rs 20,311 crore. Compared to last year, the government has made huge profits through the public offers of companies such as Coal India to rise around Rs 21,000 crore. It is on course to raise the targeted Rs 40,000 crore this year, with issues of IOC and ONGC lined up in the coming months.

LIC made an investment of Rs 1,496 crore in primary issues of private firms last year, although LIC invested around Rs 30,000 crore in the secondary market during the period, the market value of LIC's investments rise to 322,634 crore at the end of 2009-10 against a book value of Rs 189,653 crore.  
Courtesy: Siliconindia

Saturday, November 6, 2010

LIC gets RBI nod to issue pre-paid cards to clients

Policy benefits through pre-paid cards! 
No need for Bank account!!
In a move that will create a new business opportunity for India’s largest insurer, the Life Insurance Corporation of India’s card division has received permission to issue pre-paid cards into which policy benefits will be credited. 
The RBI on Thursday said that banks may issue pre-paid instruments to LIC for credit of either one-time or periodic payments by the Corporation to its customers. Speaking to ET, SC Singh, chief executive, LIC Cards said that the Corporation has been eyeing pre-paid cards as a business opportunity. Besides saving the Corporation remittance cost, it would also enable it to acquire card customers. “There may be people who are more comfortable with using a pre-paid instrument. This will also aid financial inclusion as it will allow payment cards to be issued to those without bank accounts and who are not ‘cardable’ at present,” said Mr Singh. 

According to RBI, the pre-paid instruments can be loaded by the bank by debiting to LIC’s bank account and the maximum amount that can be loaded in a single card is Rs 50,000. LIC entered the credit card business in March 2009 by floating a wholly-owned subsidiary — LIC Card Services . The ‘LIC Cards’ are managed by Corporation Bank and the Visa is the payment service provider. 

“We entered the business when the credit card industry had turned cautious and have not been aggressive so far. But we will soon be entering the next phase when we will start growing the business,” said Mr Singh. Currently, LIC Cards offers Gold and Silver cards which are ‘life time’ free for those who apply before March 2011. 

Among financial institutions, LIC has perhaps the largest customer base with over 20 crore policyholders. A couple of years ago, the Corporation set out on a data mining programme, where it sought to consolidate policyholder information into a common folio. 
Courtesy: ET