New ULIP norms: LIC seeks not to tinker with agents' commission

LIC is not going to reduce agents' commissions according to IRDA guidelines

-Businessline 7.7.2010
Life Insurance Corporation of India may not reduce agent commissions while restructuring its unit-linked products to meet the insurance regulator's new guidelines.

With 90 per cent of new business for the corporation coming via the agency channel, any tinkering with the commission structure could affect the business of the country's largest life insurer. So, the corporation may look at absorbing the commission costs into its books, said Mr D. K. Mehrotra, Managing Director, LIC.

Typically, insurance companies pay an upfront commission of 30-40 per cent in the first year, which comes down to 5-10 per cent from the second year.

The Insurance Regulatory and Development Authority has asked life insurers to evenly distribute the charges on unit-linked plans over a period of five years (say, 10 per cent commission every year). Insurers fear that squeezing agent commissions will reduce business for them.

LIC hopes to get over this by continuing with the current commission structure and by taking the costs on to its own books (to be adjusted later annually).

The corporation did something similar the last time a cap was set on charges. “We had tried to squeeze in the charges and did not touch the agents' commission. We will see whether we can do it this time also,” said Mr Mehrotra.

However, he admitted that it may not be that easy this time around to leave agent commissions untouched; the corporation would have to rely on volumes to compensate for the lower margins that would result.

“It is going to be difficult this time. We have an advantage on the volumes side. If the volumes keep on coming to me, I can tweak the products such that I don't touch their commissions,” he said.

The corporation has a 14.5-lakh strong agency channel.

“Initially, there will be an impact if commissions are reduced. If you don't pay commission, why will people work? We are still trying to see how best to structure our products…what are the expenses that we can absorb and what we would have to pass on,” he said.

Currently, ULIPs constitute 65 per cent of LIC's total sales. After the new regulatory changes, selling ULIPs will not be as easy as before and as a result sales will fall. The ideal mix of ULIPs and traditional policies will be 60:40, Mr Mehrotra said.

However, for private life insurers, leaving agent commissions untouched may not be a viable option.

“LIC has huge volumes. They can afford to do it though will not be easy even for them. We (private insurers) will not be able to absorb all the reduction in charges onto our books. We will have to pass it on. LIC is more dependent on its agency channel. But most of the older private players have a well established bancassurance channel,” a private insurance company CFO said.

Source: http://www.thehindubusinessline.com/2010/07/07/stories/2010070753730100.htm

LIC hikes stake in Bharti Airtel to 5%

Life Insurance Corporation of India has hiked its stake in private telecom services provider Bharti Airtel to 5 per cent after acquiring shares worth Rs 13.17 crore.

LIC has purchased 5 lakh shares, representing a 0.013 per cent stake in Bharti Airtel, for Rs 13.17 crore through an open market transaction, the telecom services provider said in a regulatory filing to the Bombay Stock Exchange.

The state-owned life insurer acquired the shares on June 30.

Prior to the acquisition, LIC held a 4.998 per cent stake in the company, while now it holds 5.011 per cent in Bharti Airtel.

As per the March quarter shareholding pattern available on the BSE, LIC of India held a 4.76 per cent stake in Bharti Airtel.

-Press Trust of India, July 06, 2010 (New Delhi)

Source: http://beta.profit.ndtv.com/news/show/lic-hikes-stake-in-bharti-airtel-to-5-80934

Read more at: http://beta.profit.ndtv.com/news/show/lic-hikes-stake-in-bharti-airtel-to-5-80934?cp

Bandh is also an opportunity for LIC Agents!

Bandh is also an opportunity for LIC Agents!

Insurance agents reap dividends on bandh days

KOLKATA: Did you know life insurance agents find bandh days, such as the one on Monday, the best time for client prospecting. And the serious ones make sure they meet as many clients as they can on such days. Prospective clients lend a very attentive ear to agents on such days.

“This is generally not the case on any other normal day or even on a holiday when prospective clients have pre-occupations and a host of other things on their mind. On bandh day, they are normally free and listen to our presentations very attentively. Conversion rates (policies sold) are higher than other days and we do not miss the opportunity of meeting as many clients as possible on such days,” says Ranjan Bandhyopadhyay, a Life Insurance Corporation’s agent.

For example, this Monday, when the entire state came to a halt, Ivy Dutta Roy took off on her scooter and met a number of clients near her locality. “I managed to strike deals with as many as five clients and that’s a very high conversion rate compared to any other day. Banking activities also come to halt on these days but, that doesn’t stop us from collecting first premium cheques and depositing them the next day,” she said.

Senior Life Insurance Corporation officials say total conversion ratio on bandh days is obviously smaller than any other day, but the ratio for those who are working is higher. Not all agents work during strikes, but there is one category who do all their client interaction over phone or through the internet. There are other’s like Ivy and Ranjan who refuse to let go of the opportunity that a bandh day presents.

Subhasish Ghosh, senior VP at Kotak Mahindra, says: “There is a group of clients who actually miss going to office on such days. They are the ones who wouldn’t mind doing some serious financial planning even if that’s personal work. At least, they get to do some serious planning for the future. These are the ones we find most prospective. They lend a very attentive ear to our agents and if the advisors present the right product, based on the persons profile, they generally are game.”

A development official from Life Insurance Corporation says: “I keep tab on a few of my agents during a bandh day, help them with tips and suggest products for clients from home on phone, since I may not be able to travel physically to the office or with them.”  

6 Jul 2010, 0539 hrs IST,Debjoy Sengupta,ET Bureau

Source: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/finance/Insurance-agents-reap-dividends-on-bandh-days/articleshow/6133117.cms

    

LIC new big bull in market

PK Dey Posted online: Fri Jul 02 2010, 09:06 hrs

Mumbai : Life Insurance Corporation (LIC) has emerged as a major counterweight to foreign  institutional investors (FII) in the equity markets if one goes by latest data on the insurance major’s total equity investment, which has grown nearly 50% in 2009-10.

In 2009-10, net investment by foreign institutional investors in Indian equity markets was Rs 1,10,744 crore. The only entity which came close was LIC, which made an equity investment of Rs 61,463 crore. Significantly, while FIIs have covered their exposure to stocks by taking up positions in derivatives, LIC’s entire investment is unhedged. The Insurance Regulatory and Development Authority rules do not permit investments in derivatives by insurance companies. Still, LIC has managed to act as a major domestic countervailing force to the FIIs.

As a result, while LIC has clearly emerged as the counter-weight to FIIs in the Indian equity market, the insurance major has few if any defence against market volatility. Company officials are understandably cagey about taking a public position on the issue. Mohan Raj, executive director (investments) said the company expects to make sizable investment in the current financial year too as the sentiment in the market has improved and several public offers are in the pipeline. He also said higher investments are essentially linked to premium collections. “If premium from equity-linked Ulips goes up, the investment in the equity market rises.”

Yet, the investments made by India’s largest life insurer has been a bulwark for the relative stability of the Indian equity markets in a year of massive global turmoil.

To get a measure of this statistic, one needs to compare the FII behaviour with that of LIC in 2008-09. In the year when LIC made a net investment of Rs 40,800 crore, FIIs withdrew Rs 48,248 crore from the Indian equity market. The trend of deeper LIC presence in the equity market is persisting in the current financial year too. In just April and May, the company has invested Rs 8,363 crore in equities compared with just Rs 1,189 core made by the FIIs.

Sanjay Sinha, CEO, L&T Mutual Fund said: “Not just LIC, the entire class of domestic financial institutions can be a counter to the volatility brought about by large exits sometimes made by the FIIs.”

Sinha also makes the point that the objective of institutions like LIC should not be to offer an exit avenue for FIIs (to shore up prices in the domestic market) – it must take advantage of opportunities to sell too.

Commented SBMathur, former chairman of LIC and incumbent secretary-general of the Life Insurance Council: “The insurance industry is not allowed to participate in the derivatives market. But if they are allowed in derivatives within prudent limits, they can reduce the influence of FIIs to almost half.”

He emphasised that LIC has become a sufficient counter-weight to FIIs as far as the cash market is concerned and drew parallels with the South Korean equity market. “FIIs were net sellers in the Korean market for three consecutive years from 2005. But the Korean market actually went up in all these three years because their domestic institutions had matured enough.”

Because of these restrictions, the bulk of LIC investments are held for very long periods that, in turn, cut down liquidity in the markets and the insurance company’s ability to offer higher returns to investors. As a senior executive in a rating agency said: “LIC’s impact on markets is limited in comparison to that of FIIs, simply because LIC is a long-term player. Both its investments and withdrawals are phased; in contrast, FIIs invest and withdraw in large numbers at once, thereby having a relatively stronger impact.”

Courtesy: http://www.indianexpress.com/news/lic-new-big-bull-in-market/641089/ 

So far LIC invested Rs.9,600 Cr. in the equity market

In an interview with CNBC-TV18, N Mohanraj, ED, LIC says:

  As of yesterday, we have invested Rs 9,600 crore in the equity market. When compared to corresponding period last year, it was only Rs 3,600 crore. That means in the span of nearly three months, we have pumped in a net addition of Rs 6,000 crore.

    Wealth Plus closed on May 8, during 90 days of its existence, it was closed under scheme, we have collected over Rs 11,000 crore, of course it was split over this financial year. In this financial year itself, we got about Rs 3,800 crore from that scheme and another scheme Market Plus is also doing very well.

   Our investment in various asset classes for the year will be a little over Rs 2 lakh crore. Anyway we will not be investing less than Rs 60,000 crore in equity whether it is secondary or primary market put together, will not be less than that.

Source: moneycontrol.com, 25.6.2010

LIC hires Deloitte for its risk management plan

With stock markets turning increasingly volatile, India’s largest capital market player Life Insurance Corporation (LIC) with an investment portfolio of Rs 11 lakh crore is attempting to install global best  risk management practices for its day-to-day operations. The corporation recently roped in global consultant Deloitte Touche Tohmatsu to devise best risk management for its swelling investment portfolio. Thomas Mathew, managing director, LIC, confirmed the development to FE.

“We intend to have the best risk management practices in the world to safeguard our investments and maximise our returns,” said Mathew, adding LIC has made a profit of Rs 9,000 crore from churning its equity portfolio in 2009-10.

In the first phase, an in-depth diagnostic study of LIC’s existing systems and practices in the whole gamut of its investment operations has been conducted for three months in the areas of risk governance, risk measurement, risk management and risk reporting. A gap analysis report has already been submitted with a recommendation which is being considered for preparing an implementation road map.

In the future, the focus will be on risk-related activities and further initiatives will be taken to develop a risk vision document where performance measurement will play a key role, explained Mathew.

LIC’s gross investments in various asset classes for 2009-10 stood at Rs 1,91,736.93 crore, showing a positive variation of 15.72%. Active secondary market and a strong pipeline of initial public offerings (IPOs) helped the corporation increase its exposure to equities. LIC’s gross investment in equities for 2009-10 stood at Rs 61,463.05 crore showing a positive growth rate of 51.91%.

The standard assets of the corporation are consistently maintained above 99% and gross non-performing assets (NPA) have fallen from 2.40% to 1.21% in 2009-10. LIC’s investment income has grown by 28.06% to Rs 70,672 crore in 2009-10. The corporation’s unit-linked insurance plan fund size has crossed Rs 1,80,500 crore in 2009-10.

Source:Indian Express