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Foreign Direct Investment: Rules eased for insurance, pension, securities and NBFCs

Mar 01, 2016

Finance Minister Arun Jaitley announced on Monday all 49 per cent of foreign investment limit in private insurance companies could come through the automatic route. However, management and control of insurance companies would have to be in the hands of Indian entities.

Foreign investment rules were also eased for asset reconstruction companies and non-banking financial companies (NBFCs) in the Budget for 2016-17.

Beside, cap for a foreign investment was also raised for stock exchanges.

The Insurance Laws (Amendment) Act, 2015, had increased the foreign direct investment (FDI) allowed from 26 per cent to 49 per cent, if it was routed through the Foreign Investment Promotion Board (FIPB). However, it had maintained foreign investment beyond 26 per cent would be through the FIPB route. An application had to be made to FIPB for approval, after which the insurance regulator had to clear the proposal.

Now applications need to go only to the Insurance Regulatory and Development Authority of India (Irdai). It is not clear what will happen to applications pending with FIPB.

Bhargav Dasgupta, managing director and chief executive officer (MD & CEO), ICICI Lombard, said this had made it easier for increasing FDI in general insurance. ICICI Lombard's earlier proposal for an FDI hike by its foreign partner is pending with FIPB.

Fairfax Financial Holdings has said it will increase its stake in ICICI Lombard General Insurance to 35 per cent, from 25.7 per cent.

"In the past one year there has been no primary infusion of capital in insurance companies. Making the process automatic will make it easier for new companies to enter, leading to more capital in the insurance sector," said Shashwat Sharma, partner, management consulting, at KPMG in India.

When the threshold was raised last year, it was expected Rs 10,000-20,000 crore would come in as FDI into the insurance sector. While deals to hike foreign partners' stakes to 49 per cent have been concluded, it has largely been an exchange of funds between shareholders.

Sandeep Patel, MD & CEO, Cigna TTK Health Insurance, said his company would benefit from the latest decision because it had just begun the process of seeking approval for an FDI hike.

The same rules will apply to pension funds because the Pension Fund Regulatory and Development Authority (PFRDA) Act automatically links the foreign investment threshold in the pension sector with the insurance sector.

Also, the investment limit for foreign entities in stock exchanges will be enhanced from the present five per cent, to 15 per cent. Beside, the 10 per cent FDI allowed in asset reconstruction companies (ARCs) will be allowed through the automatic route. Foreign portfolio investors (FPIs) will be allowed up to 10 per cent of each tranche in security receipts issued by ARCs subject to sectoral caps.

The 24 per cent limit for investment by foreign portfolio investors in central public sector enterprises, other than banks, that are listed on stock exchanges will be increased to 49 per cent. The basket of eligible FDI instruments will be expanded to include hybrid instruments subject to certain conditions.

Beside, FDI will be allowed in the automatic route beyond the 18 specific NBFC activities to other activities overseen by financial regulators.

Source: Business Standard



Response to FDI cap hike impressive: IRDAI chief

Feb 25, 2016

The insurance industry is undergoing significant changes, thanks to the recent increase in upper limit of foreign direct investment (FDI) to 49 per cent from 26 per cent. Ranging from regulatory overhaul in line with the new norms to mounting interest of the foreign joint venture partners of Indian insurers, the sector is abuzz with activity. TS Vijayan, Chairman, Insurance Regulatory and Development Authority of India (IRDAI), who has just completed three years in office, spoke about the current developments in insurance and the way forward in an exclusive interview to BusinessLine. Edited excerpts:

How has been the response to raising the FDI cap to 49 per cent? What about alignment of regulations with the hike in FDI limit?

The response has been quite good. The Insurance Laws (Amendment Act), 2015, has allowed enhancement of foreign investment to 49 per cent from 26 per cent while also providing the ‘Indian owned and controlled’ criterion.

So far, 16 applications were received for increase in foreign investment. Of these, six applications involving inflow of ₹2,556 crore, were cleared by the IRDAI and Foreign Investment Promotion Board (FIPB). With reference to regulations, 21 were notified, and an equal number is on the anvil. Largely, we hope to complete the task by the end of this financial year.

The industry players have not responded to the guidelines issued earlier permitting them to go for initial public offers. What is your take on this?

Yes. There has been no response so far. But I expect some transaction soon. The valuations we saw in the proposals seeking hike in foreign investments are quite encouraging. Further, not everybody is interested in hiking stake to 49 per cent fully and is leaving some space. This is a positive indication, and I expect to see interest in IPOs soon.

What areas, in your opinion, hold potential for insurance cover?

While there are several areas, I would like to mention three at this stage — pure life cover, property insurance and crop insurance. The total sum assured under life insurance in our country is around 60 per cent of GDP while the comparative figure globally is close to 150 per cent. In developed markets, such as the US, the UK and Japan, it is over 250 per cent. There is need to motivate people to go for pure life cover even while retaining the existing savings-cum-risk covers.

The recent Chennai floods and the not-so-distant Uttarakhand disaster stress the need for popularising property insurance by all stakeholders. Similarly, only 25 per cent of farmers and 10 per cent agricultural output are covered under crop insurance. The recent Pradhan Mantri Fasal Bima Yojana could make a positive impact.

You recently revamped regulations pertaining to agents. How has been the response?

The guidelines were broadly welcomed by all. They removed certain entry barriers in the insurance agency system and liberalised the recruitment of insurance agents with apt checks to protect the interests of policyholders. Now the authority is converting these guidelines into regulation after duly factoring in the experience received.

What about availability of actuaries in the country?

The insurance industry is heavily dependent on actuaries for valuation, design of products, and monitoring risk aspects and financial condition. While the basic actuarial needs are broadly met with in the life insurance segment, comparatively lesser number of actuaries is engaged by general insurers. To protect the interests of policyholders, the Authority is also considering putting in place a panel of actuaries and will use their services should it feel that the required actuarial functions are not adequately carried out in any insurance company.

Do you plan to permit over-the-counter products in insurance?

OTC insurance products should have the features of transparency, instant issue of policies, disclosure of benefits upfront, and be free from complexity. I feel that in insurance we should definitely know who is selling and how he/she is equipped to do so.

OTC products should be distribution-neutral which can be sold in common service centres, online and intermediary counters, etc. Currently, the Authority is in discussion with the insurance industry after which the regulatory approach will be firmed up.

What is your outlook for the insurance industry?

The industry is showing a positive trend in its business performance. With the latest amendments, new regulations, IT initiatives and introduction of new distribution channels, it will progress further.

Schemes such as Jan Dhan Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, Prandhan Mantri Suraksha Yojana and Fasal Bima Yojana will reach a significant proportion of the hitherto uncovered population. I think non-life business is likely to cross ₹1-lakh crore while we cannot give a figure to life business as yet because almost 40 per cent business happens in the last quarter of a financial year.

What are other steps being taken by IRDAI to promote insurance?

We are looking at facilitating sale of low-ticket policies for low-income segments through IT-enabled platforms. The guidelines for electronic policies have already been issued and framing of regulation is currently on in this regard.

We also recently launched e-Vahana Bima in Telangana and are looking to bridge the gap in subscription of motor insurance by working with the Ministry of Road Transport and Highways, and the police and transport departments.

Source: The Hindu Business Line



Private insurers may reduce exposure to non-retail motor insurance

Feb 25, 2016

Private general insurers are looking to reduce their exposure to commercial vehicle motor insurance, owing to high claims in the segment.

Insurers' claim ratios have even exceeded 150 per cent in certain periods in this space meaning that the claim amount exceeded the premium collected.

While third party insurance is mandatory for motor vehicles, own damage insurance is optional.

The chief executive officer of a mid-sized general insurer explained that several of them have begun to focus to private cars rather than commercial vehicles.

Since third party insurance pricing is controlled by Insurance Regulatory and Development Authority of India (Irdai), every year the premium is revised.

However, keeping customers in mind, the regulator does not make very steep hikes in premia. Claims and court decisions or awards have seen a 30-per cent rise year-on-year.

"Commercial vehicles' claims are directly affecting our books. Hence, it is imperative that we go slower in this segment," said the head of underwriting at a general insurance company.

The regulator had also proposed that every insurer, during a financial year, shall underwrite such minimum percentage of the 90 per cent of the overall motor TP insurance business premium of the industry for the immediate preceding financial year.

Here, the minimum percentage so decided shall be equal to the simple average of insurer’s share in total gross premium of the industry and that in total motor insurance premium of the industry, both in the immediate preceding financial year.

For instance, if an insurer’s share in total gross premium is five per cent and its share in motor insurance premium is 10 per cent, the average here would be 7.5 per cent, which would be the minimum percentage. Hence, this insurer would have to underwrite 6.75 per cent of motor business (7.5 per cent of 90 per cent) in that year.

Also, it was prescribed that no insurer shall refuse motor TP cover to any individual/entity that approaches them.

Motor insurance consists of third-party and own damage segment. While TP covers liability for third-party accidents, own damage covers damage to own self and vehicle.

It is expected the obligation of the insurers to underwrite motor TP risks based on a broad approach taking into consideration several relevant factors would ensure equitable distribution of this responsibility.

Even after the third party pool for commercial vehicles was dismantled and declined risk pool was set up, the woes of general insurers are far from over.

Combined ratios (ratio between premium collected and claims paid) for the motor insurance segment, have stood between 150 and 160 per cent for the industry.

While motor policies are being envisaged for the segment, general insurers are wary of these products, especially in commercial vehicles category, since it is understood that pricing cannot be revised in the midst of the policy being in-force.

It is estimated that the combined ratio for motor insurance might even cross 200 per cent by FY17, on the back of higher claims, especially from commercial vehicles.

The Road Safety and Transport Bill has proposed a cap on liability for road accidents under a standard TP insurance cover, customer groups and lobbies representing truck drivers and other transporters are against this. At present, there is unlimited liability for road accidents.

Source: Business Standard



Chennai calamity: Flood-ravaged corporate jets to cost insurers Rs 500 cr

Feb 22, 2016



Eight private jets owned by corporate houses were irreparably damaged in the Chennai floods last December. The planes had been submerged under water for a prolonged period and the water entered the entire aircraft.

The eight jets, belonging to TVS Motor, Sun TV, Kalyan Jewellers, the Joyalukkas group and others, have a combined insured value of around Rs 500 crore and the entire claim value will have to be borne by insurance companies.

Among the damaged jets, Sun TV’s Bombardier Global Express carries the highest insured value (about Rs 260 crore). The other seven — Phenom 100, Embraer 500, Piaggio Avanti, Hawker 900XP, Learjet 60XR, Gulfstream G200 and Hawker Beechcraft Premier — are valued between Rs 18 crore and Rs 60 crore.

Sun TV and TVS Motors did not comment on the issue.

Chennai-based United India Insurance, among other insurance companies, has been involved in the process of assessing the claims through surveyors and loss assessors. Oriental Insurance and some private insurers were also involved and took a hit due to the floods. The share of public insurers was much higher.

In addition to the damaged jets in Chennai, insurers will also have to bear the loss claims of four helicopters and claim for damage to a SpiceJet aircraft in an animal collision incident in Jabalpur, making 2015 one of the worst in losses for insurers in India, according to Global Insurance Brokers.

“The damages to the jets and its parts are severe and cannot be restored. Hence, we will have to dismantle and sell parts as scrap, though we will only be able to recover 20-30 per cent of the costs,” said the head of a public sector general insurer, which had exposure to these jets.

The Chennai aircraft manufacturers, including Hawker, Embraer and Bombardier, have called for an evaluation of the damaged jets.

“The manufacturers ruled the aircraft are beyond economical repair,” said Sakeer Sheik, managing director of Titan Aviation, which manages aircraft belonging to V M Aviation, Garuda Jet and Kalyan Jewellers, whose jets were among those.

The cost of repair would be higher than the current fair value of these aircraft, sources said.

“Globally, the Chennai floods may not be considered as a big loss in the aviation sector. However, we have never faced this big a hit in this segment, which will directly hurt our books. Some part of it was reflected in the third quarter and some of it will be visible in the fourth quarter,” said the general manager at a public general insurance company.

Insurers expect premiums to go up in aviation insurance. There have been some indications of an increase in reinsurance premium.

“Year 2015 was one of the worst in aviation losses for insurance companies in India. There were four helicopter accidents last year, leading to three total loss claims by Pawan Hans and one by Himalayan Heli Services. The total insured value of the helicopters was about Rs 120 crore,” said Anant Pawar, chief broking officer, Global Insurance Brokers.

Source: Business Standard



49% FDI in insurance via automatic route likely

Feb 22, 2016

The government is considering a proposal to permit 49 % FDI through automatic approval route in the insurance sector with a view to attracting more overseas inflows.

Currently, FDI up to 26 % is permitted through automatic approval route. For FDI up to 49 %, the approval of Foreign Investment Promotion Board is required. According to sources, the government could announce this decision in the forthcoming Budget as the move would help in improving ease of doing business also. “If IRDAI is looking at the proposal, RBI too is looking at and the management is in the hands of Indian then the government may do away with the FIPB approval route,” they said.

At present, as many as 10 proposals, including that of ICICI Prudential Life, ICICI Lombard General Insurance and Aviva Life Insurance, are pending at different stages of clearances. There are 52 insurance firms operating in India, of which 24 are in the life insurance business and 28 in the general insurance. State-owned General Insurance Corporation (GIC) is the sole national reinsurer.

In order to deepen the re-insurance market, IRDAI permitted UK-based Lloyds to set up business in India. Foreign direct investment (FDI) in the country more than doubled to about USD 4.5 billion in December. The major sectors that attracted foreign inflows include computer software and hardware, trading, services, automobile and telecommunications. India receives maximum FDI from Singapore, Mauritius, the Netherlands and Japan.

Source: FreePressJournal.in



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