India Market Life Insurance Update

Transcription

1 India Market Life Insurance Update India Issue 46 March 2012 Introduction We are pleased to release our latest quarterly newsletter on the life insurance industry in India, covering developments during the period December 2011 to February Following the various market developments and the regulatory changes, the life insurance industry continues to experience a fall in new premiums during the current fiscal year ending March Over the past 18 months, the growth of the sector had stalled with the insurers grappling with new products to cope with changing regulations and new distribution strategies. The sector is expected to close the year with a contraction in premiums of per cent. Meanwhile, there have been some reports of potential shareholding changes in Indian life insurance joint ventures. There are reports that New York Life might exit from its joint venture with the local Max Group and ING might do likewise in respect of its stake in ING Vysya Life, both due to global developments and as part of their overall Asia strategy. The Fiscal Budget for the next financial year beginning April 2012 was recently presented in the Parliament. While the life insurance industry had earlier submitted a long wish list seeking changes in the direct taxes and rules to stimulate the industry, due to compulsions of fiscal discipline, the government has proposed no major changes, except proposing to make higher life cover in investment products mandatory for seeking tax relief, and hiking the VAT (service tax) on the insurance premiums. We provide an overview on these matters and other market developments in this edition of the newsletter. We hope you continue to find the newsletter interesting and informative and look forward to receiving your feedback. Towers Watson Risk Consulting, India In this issue Industry statistics April 2011 to February 2012 Segment-wise trends Market update Capital infusions / plans News about industry players Appointments Other updates Regulatory update Additional guidelines on Asset Liability Management (ALM) and Stress testing Clarification to guidelines released for pension products Guidelines on Prospect Product Matrix Others Distribution Products Contact details Copyright 2012 Towers Watson. All rights reserved. towerswatson.com 1

2 Industry statistics April 2011 to February 2012 As per latest statistics released by the Insurance Regulatory and Development Authority (IRDA), the life insurance industry collected total new business premium income of Rs900 billion in the 11 month period April 2011 to February 2012, reflecting a 13 per cent year-on-year decline. Weighted premium collections (measured as 10% of single premiums plus 100% of regular premium) were Rs549.6 billion for April 2011 to February This represents a decline of 4.3 per cent compared to the corresponding period in the previous financial year. The weighted new business premiums collected by private life insurers witnessed a year-on-year fall of nearly 20 per cent. As a result, the market share of private players in terms of weighted new business premium decreased to 33.5 per cent during April 2011 to February 2012, compared to 40 per cent during the same period in FY State-owned Life insurance Corporation of India (LIC) recorded a growth of 6.1 per cent in weighted new business premium in the first 11 months of this financial year and continued to dominate the market. However, on an unweighted new premium basis, the LIC also saw a contraction. Despite negative growth, ICICI Prudential Life maintained its position as the market leader in terms of weighted new business premium income amongst private insurers, with a market share of 6.2 per cent. While most of the private insurers recorded a year-on-year decline in the weighted new premium collections, Star Union Dai-ichi Life and MetLife witnessed sharp growth rates of 70.6 per cent and 48.1 per cent respectively. Aviva, IndiaFirst Life and DLF Pramerica Life were the other private sector life insurers to have recorded positive growth in this period. The graph below provides a comparative picture of weighted new business performance. ICICI Prudential Life HDFC Life SBI Life Bajaj Allianz Life Birla Sunlife Max New York Life Reliance Life Met Life Tata AIG Life Canara HSBC OBC Life Aviva Life Weighted new business premium for April 2011 to February 2012 compared to April 2010 to February 2011 (in Rs milllion) Others 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 April 2011-February 2012 April 2010-February 2011 Source: IRDA Note: Others includes companies with a market share of less than one per cent each. Segment-wise trends - April to December 2011 The charts below show the segment-wise split of weighted new business premium during April to December 2011 and April to December Segment wise split of weighted new business premium collected during April to December % 23.5% 0.3% 0.3% 50.5% 24.2% Life-linked Life-non linked General Annuity Pension Health Others Segment wise split of weighted new business premium collected during April to December % 0.1% 20.8% 15.1% 0.7% Source: IRDA Note: Others includes rider premium. 62.9% Life-linked Life-non linked General Annuity Pension Health Others Weighted new business premium collections from pensions business fell by 22 per cent on a year-on-year basis during April to December 2011 and that of linked life business declined sharply by over 45 per cent. Non-linked life business instead recorded stable growth, and accounted for 63 per cent of the weighted new business premium during April to December 2011, up from 50 per cent in the corresponding period in the preceding year. Market update Capital infusions Despite the continuing growth challenges, the life insurance industry has reportedly infused fresh capital of Rs19.8 billion during the first three quarters of the current fiscal. According to the Life Insurance Council, this Copyright 2012 Towers Watson. All rights reserved. towerswatson.com 2

3 indicates the long term growth outlook of foreign and domestic promoters regarding the sector. News about industry players The Life Insurance Corporation (Amendment) Bill, 2009, aimed at raising the minimum paid-up capital of the LIC to Rs1 billion, up from the present level of Rs50 million, has been approved by the Parliament. The bill also seeks to reduce the proportion of surplus distributed to the policyholders of the LIC to 90 per cent, down from the existing level of 95 per cent. Press reports indicate that Shriram Capital plans to buyback the 26 per cent shareholding in Shriram Life and Shriram General Insurance from the South Africa-based Sanlam Group. The move is part of the two-step process targeted at securing regulatory nod for Sanlam Group s proposed investment of Rs12.4 billion in the parent company of the domestic promoter, Shriram Capital. New York Life (NYL) is reportedly planning to sell its stake in Max New York Life, which is estimated to be worth around Rs35 billion, and one-third of the sale proceeds is likely to be paid to Max India, its local partner in the joint venture. The move is a part of NYL s strategy to exit the Asian market with a view to focus on its home market of North America. The company has also divested its stake in operations in Thailand, Hong Kong, South Korea and China since last year. Netherlands-based financial group ING is reportedly planning sale of its insurance subsidiaries in Asia, in a move that would help the group pay back the bailout funds it received from the Dutch government in Further, reports suggest that ING will sell its stake in the joint ventures in India, China and South Korea, where it operates with local partners, separately from the rest of its Asian business. IndiaFirst Life, the life insurance joint venture of Legal and General of UK with two state owned banks, is expecting to break even by 2014, its fifth year of operations. The company is aiming a growth of about 30 per cent and new business premium collection of Rs10 billion for the current year as against the premium collection of Rs7 billion last year. According to reports, Reliance Life is expecting to report profits in the current year. The company has accumulated losses of about Rs29 billion which it expects to write off over a period of five years. Star Union Dai-ichi Life is expecting to collect total premiums of around Rs17 billion in FY , up from Rs12 billion earned in the last year. The company targets to break even by year 2013, its fifth year of operations. Meanwhile, the company has entered into an agreement with its joint venture partners, Bank of India and Union Bank of India, to cover all existing savings account and current account holders of the banks with a term cover of Rs200,000 each. The insurer would reportedly earn an annual premium of Rs300 million from this arrangement. Appointments Mr. Sushobhan Sarkar has been appointed the Managing Director of LIC. Prior to this he was the Executive Director in charge of the international business at LIC. Other update Indian Bank has dropped its plans of venturing into the life insurance space through a subsidiary, owing to the industry s capital intensive nature... Regulatory update Summarised below are some of the recent insurance regulatory updates and fiscal policy changes of the government impacting the Indian life insurance market. The Union Budget In his budget speech presented in March 2012, the Finance Minister has proposed a few major changes relating to taxation of life insurance policies and the rate of service tax applicable. The proposals include: While the existing rules allow tax exemption on life insurance premium of up to Rs100,000, provided that premium does not exceed 20 per cent of sum assured, the Budget has proposed to reduce this limit to 10 per cent. In other words, premiums will be eligible for tax exemption only if the sum assured is at least 10 times the premiums paid. It is proposed to increase the service tax from 10.3 per cent to per cent across all services, which will impact the insurance premiums and the charges applicable for all insurance plans. The Budget has proposed to introduce a Minimum Alternative Tax (MAT) of about 18 per cent on all companies, including insurers. Insurers currently pay a nominal tax of 12.5 per cent, but do not need to pay MAT. Insurers apprehend that the proposals would have adverse impact on the sales growth, and profitability. They have represented to IRDA to take up with the government to review the proposals. Additional guidelines on Asset Liability Management (ALM) and Stress testing Copyright 2012 Towers Watson. All rights reserved. towerswatson.com 3

4 After issuing draft guidelines on the existing ALM framework in August 2011, the IRDA has issued final guidelines, which would apply to all life insurers, aimed at ensuring their solvency and bringing in consistency in ALM reporting. The guidelines come into effect from 1 April The key features are: Insurers are required to have an ALM policy approved by their Board which must take into account the insurer s asset-liability relationships, overall risk tolerance, risk and return requirements, solvency position and liquidity requirements. The ALM policy will need to be submitted to the regulator within 90 days of the date of release of the circular. The guidelines make it mandatory for insurers to put in place effective procedures for monitoring and managing their asset-liability positions and ensuring that their investment strategies and asset positions are in line with their liabilities, risk profiles and solvency positions. The insurers will need to confirm compliance within 90 days from the date of the circular. All life insurers need to submit the data with respect to the assets and liabilities with base discount rates (as per yield curve available on the date of annual valuation) and stress of one per cent and two per cent applied on the base discount rates on a quarterly basis within 45 days from the end of each quarter, starting from the quarter ending March The insurers are also required to furnish additional asset and liability data on an annual basis containing detailed information about the impact on duration due to specified changes in equity, yields, mortality/morbidity, expenses, lapse rates and new business volumes. Clarifications to guidelines released for pension products On 5 January 2012, the IRDA issued clarifications to the guidelines for pension products, released in November 2011, in response to the concerns raised by insurers. The regulator has now clarified that the guidelines would not apply to Group Gratuity and Group Leave Encashment products. Clarifications on the assured benefit clause in pension products include the following aspects: The insurer shall guarantee either a non-zero rate of return on premiums paid from the date of payment to the date of vesting or an absolute amount, to be disclosed at the time of purchase of the policy. In case of the demise of the policyholder during the term of the contract, the nominee shall be entitled to receive a sum equal to the premiums paid accumulated at the guaranteed rate of return. The surrender value in case the product is on a unitlinked platform shall be the higher of fund value and premium accumulation at the guaranteed rate on the date of surrender less the discontinuance charges set in compliance with the relevant IRDA guidelines. Guidelines on Prospect Product Matrix The IRDA has issued draft guidelines on development and implementation of Prospect Product Matrix in an attempt to ensure need-based sales by the direct sales personnel of insurers and their agents and brokers. Some key points under the proposed guidelines include: Prior to making a recommendation, an insurer or a distributor must make reasonable efforts to acquire a customer s suitability information comprising age, annual income, financial resources used for funding the purchase of the product, financial objectives, existing assets, liquidity needs, liquid net worth, tax status and risk tolerance. In addition, this information must be made available to the regulator. Insurers must establish a supervision system in order to ensure compliance with the released guidelines and provide adequate training to agents and brokers for the suitable sale of products. Insurers must impart adequate training on the Prospect Product matrix to the agents as well as provide inputs to brokers for sale of their products. Others Press reports suggest that the IRDA may soon allow insurance repositories to start operations, facilitating e- insurance of insurance policies. It is expected that initially the system will be introduced for life insurance policies and subsequently extended to general insurance policies. The IRDA has shortlisted five entities - CAMS, Karvy, NSDL, CDSL and STCI - to set up and operate insurance repositories. The IRDA plans to permit the operations of domestic private life insurers in foreign countries provided they have been in business for more than 10 years and the capital requirement for the commencement of such venture has been met from the shareholder s fund. The IRDA has allowed insurance brokers to offer consultancy services related to settlement of claims arising from policies serviced through them however not exceeding Rs10 million. Copyright 2012 Towers Watson. All rights reserved. towerswatson.com 4

5 The regulator is planning to allow senior agents with more than five years of experience to mentor a maximum of 15 licensed junior agents at a time. For the mentorship, senior agents would be entitled to 25 per cent of the first year commission on the policies sold by the agents mentored by them. With this move, the IRDA expects the productivity of the agency force to increase and also to attract new agents to the profession. Guidelines for approval and renewal of licenses of agent training institutes have been issued in an attempt to enhance the professionalism within the sector. As part of these guidelines, the regulator has asked all existing agent training institutes to register themselves as a company, society or a trust by June 2012 if not already done under any of these categories. In an exposure draft, the IRDA has proposed to prohibit insurance companies from accepting advance payment of annual premiums during the period of 30 days before the due date. As per the draft guidelines, monthly or halfyearly premiums may be paid only 15 days prior to the due date. Reportedly, the IRDA is proposing to set an upper limit to the sum assured on life insurance policies. The move is aimed at reducing reliance of insurers on reinsurance companies and ensuring that insurers take on maximum risk themselves. The IRDA is also said to be planning to ban loans against unit-linked investment plans (ULIPs) offered by life insurers. The IRDA has stopped approving any ULIP carrying an option to take a loan against the policy, on grounds that fund volatility may pass on excessive risks to the insurer. Distribution Birla Sun Life is reportedly in the final stages of signing a bancassurance deal with Syndicate Bank. Press reports suggest that the company had offered Rs6 billion as advance commission to the bank based on estimated future sales and the bank is expected to take around 6 per cent stake in the life insurance company. DLF Pramerica Life, primarily present in northern Indian, plans to expand its coverage to Tier-II, Tier-III and smaller towns across the country. HDFC Life has set up its first international office in Dubai as a part of its strategy to expand its business in the Gulf markets and offer new products catering to the specific needs of the Non-Resident Indians. IndiaFirst Life is planning to increase the number of agents from 1,500 currently to 5,000 in the next financial year. At present, 85 per cent of the new business for the company is generated from the bancassurance channel. The company is aiming to procure 50 per cent of new business premiums from other channels in the next two to three years. The insurer has also collaborated with Baroda Uttar Pradesh Gramin Bank and Vidharbha Kshetriya Gramin Bank in Maharashtra, the two rural banks sponsored by its promoter banks, to expand its coverage in the rural sector. The LIC has tied-up with ING Vysya Bank and Dhanlaxmi Bank under which the banks will provide epayment services to the LIC. Reliance Life is aiming to expand its presence in the semiurban and rural markets by sales through two new distribution models. These include the appointment of graduates and housewives on company rolls and engagement of trainee career agents. SBI Life has launched a multi-lingual website in nine Indian languages with a view to enhance effective communication with its customers across the country. Star Union Dai-ichi Life is planning to enter into an agreement with the Bank of India, its majority stakeholder, for the sale of its reverse mortgage plan which is currently being sold through Central Bank of India and Union Bank of India. It also plans to initiate the online sale of products in the next two quarters. Press reports suggest that the online sales channel is fast emerging as the cost-effective and preferred mode for buying or renewing insurance policies among customers. While a number of insurers offer term plan for sale online, few life insurers have extended their online portfolios to include ULIPs and they plan further product launches through this channel. Products Some of the recent product launches in the Indian life insurance market are listed below: AEGON Religare Life has launched a participating endowment product aimed at the education of children, the Educare Plan. The plan offers guaranteed payouts during the last four policy years. In case of death of the policyholder, in addition to the sum assured, accrued bonuses and guaranteed payouts, an option to receive 10 per cent of the sum assured each year till the end of the premium payment term is also available. AEGON Religare Life has launched Guaranteed Income Plan, a participating plan which offers a guaranteed income of 7.5 per cent of the sum assured annually till the assured attains the age of 85, in addition to life cover. The plan provides a death benefit that is higher of the sum assured plus accrued reversionary bonuses or the total premiums paid. Copyright 2012 Towers Watson. All rights reserved. towerswatson.com 5

6 Bajaj Allianz Life has launched a single-premium unit-linked insurance plan, Guaranteed Maturity Insurance Plan targeted at rural markets. The plan guarantees a maturity benefit of at least double the single premium in addition to life coverage throughout the 10 year term of the product. The premiums under the plan would be paid through the purchase of Guaranteed Maturity Certificates available in denomination of Rs5,000. The product is reported to be the lowest single premium unit-linked insurance policy in the market. Bharti AXA Life has launched eprotect, its first online term insurance plan. The minimum sum assured under the policy is Rs2.5 million. The plan offers special rates for non-smokers if the sum assured chosen exceeds Rs5 million. In case of death of the policyholder, Rs100,000 from the sum assured is paid to the nominee as Family Care Benefit within 48 hours of the receipt of relevant documents subject to specified conditions. DLF Pramerica Life has introduced DLF Pramerica Fee Protect and DLF Pramerica Fee Protect+. In case of death of the policyholder, the child is entitled to a monthly payout till the end of the policy term to cover the education expenses. In order to account for the rise in fees, the plans provide for a five per cent per annum increase in monthly payout every year from the end of the second policy year without any increase in premium. Fee Protect+ also offers the benefit of return of 80 per cent of the total premium on maturity to provide for the child s higher education. HDFC Life has entered the online distribution channel with the launch of an online term assurance product Click 2 Protect. The minimum sum assured under the plan is Rs1 million and the minimum premium payable is Rs2,000 per annum. ING Vysya Life has launched an endowment assurance plan, ING Star Life. The guaranteed death benefit under the plan is five times the annual premium paid and the sum assured plus Guaranteed Additions are paid out during the last three policy years. The LIC has launched Jeevan Ankur, a with-profits child plan. In case of death of the policyholder, the benefit payable to the nominee under the plan equals the basic sum assured together with an income benefit equal to 10 per cent of the basic sum assured payable on each policy anniversary thereafter till the end of the policy term. On maturity, sum assured plus loyalty additions are payable. The LIC has also launched a single-premium endowment plan, Jeevan Vriddhi. In case of death of the policyholder, the basic sum assured equal to five times the single premium is payable. On maturity, the guaranteed sum assured along with any loyalty addition shall be payable to the policyholder. The policy term under the plan is fixed at 10 years. Max New York Life has introduced an endowment plan, Premium Return Term Plan. The plan provides a maturity benefit wherein the policyholder is entitled to receive 100 per cent of the premiums paid. In the event of death of the policyholder, the basic sum assured is payable while in case of death by accident, an additional 50 per cent of the basic sum assured is paid to the nominee. MetLife has launched a regular premium unit-linked children savings plan, Met Smart Child. The plan provides maturity benefits of fund value and loyalty additions. In case of death of the assured, the higher of the sum assured or 105 per cent of total regular premium paid is payable and future premiums are waived off. The policyholder can choose to invest in the listed six unit linked funds or opt for a systematic transfer option to balance the market volatility risk through fund transfers. Reliance Life has launched Guaranteed Money-back Plan, whereby the policyholder receives money back benefits in the last five policy years, in addition to death cover and guaranteed loyalty and maturity additions and rider options. The company has also launched a unit-linked product Classic Plan-II. Kotak Life has launched a unit-linked plan, Invest Maxima with zero premium allocation charges. The policyholders can choose between two portfolio management strategies, Self Managed Portfolio Strategy which offers a choice of five fund options and Systematic Switching Strategy which gives an opportunity to invest in the equity market in a systematic manner. Additionally, the policyholders can exercise the Systematic Exit Strategy option in the last policy year wherein the fund balance will be gradually transferred to a lower risk money market fund. Copyright 2012 Towers Watson. All rights reserved. towerswatson.com 6

7 Contact details Towers Watson's Risk Consulting team covers the length and breadth of India with associates based in Mumbai and Gurgaon. Mark Saunders Managing Director, Hong Kong and Risk Consulting Practice Leader, Asia Pacific R Krishnamurthy Managing Director, Products, Distribution and Markets, India Vivek Jalan Director, Risk Consulting, India Dilip Chakraborty Senior Adviser, Towers Watson, India s: mark.saunders@towerswatson.com rajagopalan.krishnamurthy@towerswatson.com vivek.jalan@towerswatson.com dilip.chakraborty@towerswatson.com Mumbai 511/512, Solitaire Corporate Park Andheri-Kurla Road, Andheri East Mumbai Tel: 91 (22) Fax: 91 (22) Gurgaon 404B, 4th Floor, Centrum Plaza DLF Golf Course Road, Sector-53 Gurgaon Tel: 91 (124) Fax: 91 (124) The Indian Market Life Insurance Update has been prepared by Towers Watson for general information purposes only and does not constitute professional advice. The information, opinions and projections contained in this Newsletter are derived from various sources and have not been independently verified by Towers Watson. If you require professional advice or require any further information please contact any of the above named individuals. ABOUT TOWERS WATSON Towers Watson is a leading global professional services company that helps organisations improve performance through effective people, risk, and financial management. With 14,000 associates around the world, we offer solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Towers Watson covers the length and breadth of India and operates from five offices in four cities. For more information, please visit Copyright 2012 Towers Watson. All rights reserved. towerswatson.com 7