Re: {LONGTERMINVESTORS} Insurance sector --- discussion thread...
RAJESH DESAI
Applaud Chidu initiatives but cheer awaits details: HDFC
Amitabh Chaudhry, MD & CEO, HDFC Life in an interview to CNBC-TV18 explains the key issues that were discussed and the higlihghts of the finance minister's interaction with the captains of insurance sector.
After meeting the captains of the insurance sector in September, finance minister (FM) P Chidambaram announced a slew of reforms to revive the sector. The finance minister has said that the insurance regulator (IRDA) will examine the use-and-file system for the approval of insurance products.The regulator will design standard products that can be used by the industry. IRDA will evolve guidelines to reduce arbitrage between units and traditional products. The regulator will accept the KYC checks done by banks and will only mandate additional information from the policyholder. Sources in the finance ministry say that IRDA is in favour of allowing 49 percent FDI into the sector.
Amitabh Chaudhry, MD and CEO, HDFC Life in an interview to CNBC-TV18 explains the key issues that were discussed and the higlihghts of the interaction with the finance minister.
Below is an edited transcript of the interview on CNBC-TV18.
Q: The government and the FM is keen that FDI limit in insurance sector be hiked from the current 26 percent to 49 percent, the bill has to go though the Parliament and the government does not have the numbers at this point of time. So, does that materially change anything as far as the sector is concerned because the uncertainty continues on the FDI front?
A: I completely agree. The government has announced its intention to get the bill clear through the cabinet, but the bill has no meaning until it is passed by the Parliament. Considering the current political situation, the possibility of getting this bill passed looks like a remote possibility. It is an important statement, but it does not achieve anything till the act is passed by the Parliament.
Q: What could change or revive sentiment for this sector. The details which the finance ministry had mentioned are really material game changers for the sector. This business of moving from file and use to use and file, the devil is in the detail and the industry has been grappling with a similar change since 2007. Do you believe this will materially change things for the industry?
A: The fact that the finance minister has announced it and this has been based on a discussion with the FM, the ministry had with the regulator, hopefully this will lead to a real use and file kind of situation. Similar changes were stated in the past in various circulars, but in reality the product approvals are taking time.
While we understand why they are taking time, the regulator wants to be very cautious before they approve any product. They want to dot all the i's and cross all the t's, but if they can come out with a guideline, which really moves to a situation where we use to move and file, it will benefit the industry.
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CA. Rajesh Desai
RAJESH DESAI
BJP questions legal, political intentions behind FDI in insurance
BJP on Friday questioned the “legal and political intentions” behind allowing 49 per cent FDI in the insurance sector but remained non-committal about its stand in Parliament when the Bill regarding the economic reform comes up for passage.
“We have made it very clear that we are against FDI in multi-brand retail. As for yesterday’s cabinet decision, the Standing Committee on Finance had opposed more than 26 per cent FDI in insurance. BJP is opposed to the government’s views,” party vice-president Mukhtar Abbas Naqvi told reporters.
Asked what BJP’s stand will be when the insurance bill comes up in Parliament, he said “we said FDI should be 26 per cent. There is a question mark on the legal and political intentions behind this move of the government.”
After opposing FDI in multi-brand retail, BJP is concerned that it may be creating the impression of being anti-reforms. Since BJP-led NDA, when it was in power, had taken the initiative to allow FDI in insurance and pensions, a section in the party feels it should not oppose it now.
However, Mr. Naqvi evaded all questions on what BJP’s stand will be in Parliament on these issues.
Finance Minister P Chidambaram has said the government will reach out to the principal opposition to win its support.
Meanwhile, BJP continued its attack against Thursday’s cabinet decision. “We are not against FDI but against foreign direct interference. This government is against the welfare of the country and is more worried about foreign interests,” Mr. Naqvi charged.
He alleged the government is looking at FDI in multi-brand retail as the only viable option of bringing in foreign funds.
But BJP indicated that though it will not bring a no-confidence motion against the UPA government, it may support TMC if Mamata Banerjee carries out her threat of making such a move in protest against FDI in retail, insurance and pensions sectors.
FDI in insurance will help strengthen the rupee: Keki Mistry, HDFC
In a chat with ET Now, Keki Mistry, VC & CEO, HDFC, talks about the recent cabinet nod to increase FDI in insurance and pension sectors. Excerpts:
ET Now: FDI in insurance is a step in the right direction but given the political realities, it will be difficult for UPA II to table and get this bill approved.
Keki Mistry: Definitely a step in the right direction and we welcome it wholeheartedly. Whether they are able to get it through parliament or not is something we'll to wait and see. Hopefully, if they can get it through parliament, it will be a wonderful thing. It will boost sentiment, we will get in a lot of money into India because there is a lot of interest from foreign insurance companies for investing in India. So we get a lot of money which would help the rupee to strengthen. So all in all, I would say very positive.
ET Now: On a ballpark basis, what is the capital requirement of the insurance industry for say the next 3 to 4 years and on that account, how imperative it is that the insurance FDI gets approved?
Keki Mistry: Capital is an ongoing requirement, capital is a function of growth. So with all the measures that the government and IRDA are taking in terms of trying to improve the product profile, faster approval of products, new products and so on so forth, one would expect that the growth will pick up substantially and as the growth picks up, the capital requirements will also start setting in. So it is difficult to envisage the value at this point of time, especially since some of the bigger companies are now mature and therefore do not really require that capital unless the growth numbers really grow very fast but the smaller companies will definitely continue to require capital. So any step where foreign ownership in insurance is increased would be welcome, whether it is through FDI, FII or whether it is just foreign ownership.
ET Now: If I am a shareholder of HDFC Limited and if I am betting on HDFC Insurance to go public, now that FDI limit in insurance has been increased, would you go slow when it comes to your IPO plans for the insurance business?
Keki Mistry: One has to read the final language of the notification, whenever it happens post the parliament approval, because if it is only FDI, then effectively what it means is that the foreign partner can bring in capital or you can raise capital through ADR or GDR route, which is also construed as FDI, as far as I know. If the language says only foreign ownership, then it is possible to do both in FDI, where the foreign partner brings in some amount of capital and if the foreign partner does not want to put in the full level of capital that they can, then it is possible to do an IPO where there is 26% or whatever reserve for foreigners. So it is a function really of how the sector opens up and the notification that comes out.
ET Now: The cabinet has also okayed FDI in pension funds. How do you see the opportunity there once it gets parliamentary nod?
Keki Mistry: Again very good because in India, we do not really have a pension product in that sense. The most important thing that we need to look at when there is a pension reform is taxation. Today what happens is when you have an insurance product, whether it is a pension built-in, there is return of capital. You put in let us say Rs 10 lakh today with an understanding that at sometime in future, you will get an annuity of X amount every month. The money that you are receiving every month from the insurance company, it is fully taxed in your hand. The money which you are receiving back has two elements, one is the interest element, which is when you have given that Rs 10 lakhs to the insurance company, you're earning interest, and the other is the return of principal. So when there is a return of principal, that really should not be subject to tax. So if you bring in the appropriate tax laws where the principal repayment is eliminated, then pension will be a brilliant product.
ET Now: Let us talk about specifics here. My understanding is that as of now, HDFC insurance arm is fully funded for next 3 years and if you want to raise capital, you will not be raising capital at current valuations. Is that a safe understanding?
Keki Mistry: No, I do not think we have any clear view on whether we will do an IPO at this point of time or not. We were saying that we would look at an IPO when foreign ownership limits increase or when foreign ownership is opened up. We are, in terms of internal work that we have done, pretty much ready for an IPO as and when we can do it. Obviously you need 6 months or 9 months lead time but we would need to talk to our foreign partner. We need to talk to Standard Life to take a call on whether we should do an IPO, whether they will just increase the foreign ownership limits etc. So first step is let us get the bill passed to parliament and then we will take that as a second step.
ET Now: But has there been any indication from Standard Life that they do hope to increase the stake?
Keki Mistry: Yes, I am sure they would like to increase their stake, the question is whether they would increase it to the full extent of 49% or they increase a fair bit and leave something on the table for an IPO. These are issues which need to be debated and discussed with them.
ET Now: But I am sure if you will allow Standard Life to increase their stake, you will charge a premium.
Keki Mistry: Naturally. It has to be at a fair value.
ET Now: So could that be the next trigger for HDFC Limited and for your shareholders?
Keki Mistry: That is something which you have to ask the analysts.
ET Now: Management is the best judge.
Keki Mistry: In reality, we believe that the valuation put on insurance companies by the analyst community, and it is my personal view, is significantly understated and this is across the board, not just our company but for all insurance companies.
ET Now: And if Standard Life were to hike their stake to full 49%, is it in eventuality that you guys are going to list?
Keki Mistry: As I said, these are issues which we need to debate with Standard Life and then take a call. We would like to list because listing gives a market valuation to the company. Listing enables other foreign investors to also participate in the issue. So I am sure what we would like to discuss with Standard Life is the possibility that instead of increasing their stake to 49%, we increase the stake to a slightly lower level and leave some window for other foreign institutional investors to invest through an IPO.
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Tanya Mehra.
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CA. Rajesh Desai
Rajesh Desai
SECTOR UPDATE by Sharekhan
Insurance
APE jumps 44% MoM in December 2012
The growth in the annual premium equivalent (APE) of the life insurance industry declined for the sixth consecutive month during December 2012 as it declined by 19.7% year on year (YoY). The slowdown was mainly contributed by the Life Insurance Corporation of India (LIC), which showed a decline of 27.2% YoY in the APE. On the other hand, the private players reported a decline of 7.2% YoY in December, with MetLife India Insurance Company (MetLife; down 72.1% YoY), Aviva Life (down 31.1% YoY) and Birla Sun Life (down 43.4% YoY) posting steepest decline in the APE. On the other hand, SBI Life (up 49.1% YoY) and HDFC Life Insurance (HDFC Life; up 22.8% YoY) posted an increase in the APE on a year-on-year (Y-o-Y) basis.
On a month-on-month (M-o-M) basis, the APE for industry grew by 43.8% with the private players and LIC showing a growth of 44.1% and 43.5% respectively. On an M-o-M basis, mere two out of the 22 players posted a decline in their APE. The companies like SBI Life, Max Life and ICICI Prudential reported a growth of 111.6%, 78.8% and 47.3% respectively in their APE.
On a year-to-date (YTD) basis (April-December 2012), the private players fared better than the LIC as their APE declined by mere 1.9% YoY as compared with a 15.0% Y-o-Y decline by the LIC and a 10.5% Y-o-Y decline by the industry. The growth (April-December 2012) in the APE of the private players was mainly led by players like SBI Life (up 18.5% YoY) and Bajaj Allianz (7.2% YoY).
The market share of the private players improved by ~330 basis points to 37.5% (LIC, 62.5%) in April-December 2012 compared with 34.2% in the corresponding period of the previous year. During the period under review, the companies like TATA AIA (2.2% vs 3.7%), MetLife (2.8% vs 3.4%) and Birla Sun Life (8.0% and 8.6%) showed a decline in the market share. However, SBI Life, ICICI Prudential and HDFC Life turned out to be major gainers as their market share improved by ~220, 140 and 90 basis points respectively.
The growth in the life insurance premiums has been tepid for the industry, though private players have posted a better performance. The media reports suggest that the Insurance Regulatory and Development Authority (IRDA) may soon release guidelines for traditional products that would make minimum death benefit and minimum surrender value mandatory, besides aligning them with pension products in some aspects of benefits. The insurers will be required to refile the products for approval before June 2013, which could impact the premium growth. Therefore, compared with a 15-20% growth expectation at the beginning of the fiscal, the market expects the premium growth to be flattish in FY2013.
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CA. Rajesh Desai
Rajesh Desai
SECTOR UPDATE
Insurance
Slowdown persists
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The growth in the annual premium equivalent (APE) of the life insurance industry declined for the eleventh consecutive month in May 2013 as it declined by 23.6% year on year (YoY). This was largely contributed by the Life Insurance Corporation of India (LIC), which showed a decline of 32.0% YoY in the APE. On the other hand, the private players reported a decline of 7.2% YoY in May, with Aviva Life (down 42.5% YoY), HDFC Life (down 38.1% YoY) and Birla Sun Life (down 31.2% YoY) posting the steepest decline in the APE. However, Reliance Life Insurance (Reliance Life; up 165.5% YoY) and Kotak Life Insurance Company (Kotak Life; up 138.1% YoY) posted a significant increase in the APE on a year-on-year (Y-o-Y) basis.
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On a year-to-date (YTD) basis (April 2013-May 2013), the private players fared relatively better as their APE declined by mere 4.1% YoY as compared with a 28.9% Y-o-Y decline by the LIC and a 21.1% Y-o-Y decline by the industry. The growth (April 2013-May 2013) in the APE of the private players was mainly led by players like Kotak Life (up 100.9% YoY) and Reliance Life (up 88.8% YoY). Max Life Insurance (Max Life) also reported a healthy growth of 15.6% YoY in its APE.
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On a month-on-month (M-o-M) basis, the APE for industry grew by 28.5% with the private players and LIC showing a growth of 51.9% and 16.1% respectively. On an M-o-M basis, mere eight out of the 24 players posted a decline in their APE. Companies like Tata AIA Life Insurance Company (Tata AIA), MetLife and Max Life reported a decline of 15.6%, 10.4% and 8.3% respectively in their APE.
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The market share of the private players in May 2013 improved by ~725 basis points to 41.0% (LIC, 59.0%) compared with 33.8% in May 2012. During the period under review, the companies like Reliance Life, Kotak Life and Max Life turned out to be major gainers as their market share improved by ~440, 190 and 85 basis points respectively.
Outlook
Slowdown
persists in the sector and it's been almost a year since
the sector has seen a positive growth (Y-o-Y basis).
Compared with a growth expectation of about 10% at the
beginning of the fiscal, we now expect the premium growth to
be flattish in FY2014. The IRDA is likely to come up with
guidelines on bankassurance over the next couple of months, which
could help the sector. Besides that, the transition towards the
newer regulations (proposed for traditional products) will
continue to impact the premium growth.
Click here to read report: Investor's Eye
CA. Rajesh Desai