Ten years on, private life insurers need lifejackets

Source: FinancialChronicle

India’s private sector life insurance players remain in the red, even 10 years after breaking ground in the domestic insurance business, with sustained profitability eluding most companies. While life insurance companies do not disclose their embedded value, the actual measure of their profitability, several insurance officials said it was not even twice the capital infused for many players. None of them wanted to be identified by name for this report.

Embedded value (EV) is defined as the present value of the future profits expected out of the current block of insurance business. The Insurance Regulatory and Development Authority (Irda) requires the EV of a life insurance company to be at least twice its paid-up equity capital, if the insurer wants to access capital markets and dilute promoters’ holding.

“Very high level of capital has been infused by the insurance industry, but the corresponding level of profit is yet to be made,” said a senior executive of a private life insurance company.

“Only two or three players such as Kotak Life have been able to achieve an EV that is at least twice the capital infused. The recent Ulips and pensions have further reduced the margins for the insurers,” the executive added.

According to the unaudited data of Life Insurance Council, companies had infused Rs 33,550 crore in business till last February against Rs 31,360 crore till February 2011. ICICI Prudential Life insurance has infused Rs 4,790 crore, Bajaj Allianz Life Rs 1,211 crore and HDFC Life Rs 2,160 crore till this March. Cumulative losses of the life insurance industry stood at Rs 20,569 crore in 2010-11 (Rs 20,143 crore in 2009-10). Figures for 2011-12 are not yet available.

Though dozen-odd companies have been reporting accounting profits, it will still take a while for them to wipe off their accumulated losses. ICICI Prudential Life insurance reported 71 per cent increase in

Top pvt life insurers shut 1,500 branches in 2 years

Source: BusinessStandard

With “profitable growth” replacing “expansion drive” as the buzzword in the sector, the country’s top private life insurers have significantly reduced branches and employees over the last couple of years to cut costs and improve efficiency.

ICICI Prudential, the second largest private life insurer in the country, has reduced its branches by nearly a half from 1,923 to 1,000 in the last two years. The top six private insurers, barring SBI Life, reduced nearly 30 per cent of branches, while the headcount was scaled down 27 per cent in the same period. Interestingly, the profits of all these players doubled over the last two years.

Insurance companies have different takes on the matter, terming it “right sizing” or “smart usage of realty” or “efficient utilisation of space” but the move to rationalise branch networks was a direct fall-out of the stringent regulations introduced by the Insurance Regulatory and Development Authority (Irda) in September 2010. The Irda had raised the lock-in period and the insurance cover on the popular unit-linked products.

Top private life insurance players like Max New York Life, HDFC Life, Birla Sun Life, Aviva Life, Tata AIG Life and Bharti AXA Life all reduced their branch network between

18-250 in the last couple of years. However, in the same period, SBI Life, the second largest private life insurance player increased its branch network to around 714, from 494 as on March 31, 2010.

In terms of the number of employees, these top six insurers have reduced it by 26 per cent on average. ICICI Prudential Life reduced its headcount 34 per cent to around 13,200 in March 31, 2012 from 20,000 in March 31, 2010. Bajaj Allianz trimmed its employee count by more than 30 per cent.

“Our headcount has

LIC is ‘Mr Dependable' for the Government

Stake in PSUs as of December amounts to Rs 68,000 cr at current prices
Source: TheHindu BusinessLine

Life Insurance Corporation (LIC) of India has come to the Government's rescue repeatedly in the recent past. It held 4 per cent stake in 34 public sector undertakings (PSUs) in December 2008. This increased to 5.6 per cent stake in 42 PSUs at the end of 2011.

An analysis of the shareholding pattern of LIC in companies where it holds over 1 per cent shows that the value of its investments in PSUs amounts to more than Rs 68,000 crore at current prices. This value will increase if the smaller holdings of LIC are also included. We have excluded the holdings of ULIP and mutual fund products of LIC for this analysis.

LIC's role was highlighted in the recent ONGC episode. The insurance company invested more than Rs 15,000 crore in ONGC this quarter, which includes the shares divested by the Government recently. It is also planning to infuse Rs 7,800 crore into public sector banks in the coming months.

The insurance giant is, however, not showing a similar preference for private sector companies. Its stake in private companies during the three-year period ended December 2011 has more or less remained the same at 6 per cent.

Playing Atlas

The ONGC issue is not the first instance when LIC stepped in to play Atlas to Government. LIC's stake in companies such as NTPC, NMDC, Shipping Corporation and PFC that made public offers has jumped after the issue. An analysis of NTPC and NMDC shareholding patterns before and after the offer shows that LIC has picked more than half of the offer. In NTPC, the Government divested 5 per cent of its holding. LIC's stake in the company jumped to 3.51 per cent from less than one per cent. Similarly, in NMDC, where the Government divested 8.38 per cent of its stake, LIC's holding surged to 4.97 per cent. In both these issues, institutional participation was low.

In other PSU issuances where institutional demand was high such as Oil India, PowerGrid, MOIL, REC and CIL, LIC didn't figure in the list of institutions holding more than 1 per cent. This underscores the role of LIC in issues where participation is low.

Bank capital infusion

LIC will now infuse capital into fund-starved public sector banks too. Since the Government is already planning to infuse Rs 20,000 crore into banks this fiscal, there is little scope of further fund infusion from it.

LIC has, therefore, stepped in to invest another Rs 7,800 crore to help banks shore up their capital adequacy. Bank of Baroda, Punjab National Bank and Bank of India will be the key beneficiaries of LIC's capital infusion. 

Brand recall on top of insurance customers’ mind, LIC on top

Source: The Economic Times

Since a couple of years, the insurance space, and particularly the life insurance segment, has seen a lot of activity on the regulatory front. So far, the talk has primarily been centred around the cost angle - be it the regulator-induced lowering of Ulip charges, associated agent commissions or the resultant cost-cutting measures - adopted by the company. While companies may have hoped that customers will value the friendlier charge structure which will boost persistency ratios, it does not seem to be the case, going by an IMRB survey conducted between September and November 2011. According to the study, which was conducted across 18 towns and took into account 14 life companies, it is brand imagery that predominantly drives customer loyalty. 

Over 50% of the weightage goes to brand imagery, with the actually quality of experience bagging the second spot in the hierarchy. 'Surprisingly, charges (cost) is the least important factor. While it has been observed that customers across the board, almost always claim that they are unhappy with the charges levied, this has a very negligible influence on their continued patronage of the company,' states the report. '...companies with a strong legacy and those that have been in existence for a longer period of time enjoy the best imagery and consequently the highest loyalty levels.' Not surprisingly, LIC tops the list of companies when it comes to loyalty levels. 

This apart, the survey lists product, agent, service communication as the areas where companies can differentiate themselves from others. In terms of product, companies are by and large undifferentiated on the range of policies or benefits offered, but can set themselves apart on the basis of 'on how exhaustively and thoroughly their product features are communicated e.g. charges, disclaimers, returns, other terms and conditions,' it states. In addition, companies need to ensure that their agents do not oversell products, as it constitutes one of the gravest grievances of policyholders. In general, life insurers also need to make efforts to send alerts/ reminders and stay in touch with customers, an area where all companies seem to lagging behind. And, as far as advertisements are concerned, insurers need to focus on making these commercials more informative and educative, the study says. 

Government asks LIC to help banks

Starved of funds, government asks LIC to help capitalise small public sector banks

Source: The Economic Times

Sandwiched between an urgent need for capital and a financially wrecked owner, small state-run banks will knock on the doors of Life Insurance Corporation as they prepare to sell new shares to raise funds, said three people familiar with the plans. 

Dena Bank and Bangalore-based Syndicate Bank may be the first among nearly a dozen small public sector banks which will sell shares in the next few months to raise a few thousand crores, they said. 

LIC, the biggest institutional investor in the country with annual equity investments of about 40,000 crore, will walk along with the government in capitalising banks that are restructuring debt even as they are saddled with rising bad loans. 

The government, which is set to breach the fiscal deficit target of 4.6% of the gross domestic product by a percentage point, has committed to pump 18,000 crore into large lenders such as State Bank of India, Punjab National Bank and Central Bank of India. 

"There is a chance that LIC may step in to support the government," said a bank executive who hasn't got the government's commitment on capital. "The pricing will be based on a Sebi formula and will leave no room for speculation." 

A government starved of resources and a weak equity market, despite a 14% rise this year, is hampering fund-raising plans of public sector banks. With the government unwilling to let its stake fall, it is leaning on LIC to buy new shares, which would give it the comfort that it indirectly retains ownership in the banks. 

The Dena Bank board will meet on Monday to consider a share sale to insurance companies and government-sponsored mutual funds. 

Syndicate Bank, in which LIC holds more than 10%, will meet on Saturday to consider sale of shares.