Insurance Newsletter - March 25 to March 28, 2013

The Insurance Regulatory and Development Authority (IRDA) is considering to make third party motor insurance policies valid for two years. IRDA is working on a draft two-year motor policy.

March 28, 2013 5:55 IST | India Infoline News Service
Top Stories 

L&T, Generali and Future Group sign non-binding term sheet for insurance JV merger

Pantaloon Retail (India) Ltd (Future Retail Limited) has announced that the Company has, inter alia, signed a non-binding term sheet with Larsen & Toubro Limited ("L&T") for merger of its insurance joint venture company Future Generali India Insurance Company Limited (FGIICL) with L&T General Insurance Company Limited (LTGI") and sale of partial stake to L&T and its other joint venture partner Participatie Maatschappij Graafschap Holland NV ("which is a subsidiary of Assicuranzioni Generali S.P.A") in the merged entity.

The aforesaid transactions are subject to the receipt of the necessary approvals from governmental and regulatory authorities, including the CCI and the IRDA.

Post completion of the transaction, Future Group shall continue to hold 23% shares in merged entity with the other shareholders being Participatie Maatschappij Graafschap Holland NV ("which is a subsidiary of Assicuranzioni Generali S.P.A") holding 26% and L&T holding 51% of shares in merged entity.

LTGI, having started operations in 2010, achieved a GWP of Rs143 Crore for year ending March 2012 and Rs118 Crore for the 9 months ended December 2012. LTGI operates out of 15 branches, servicing customers in more than 1,000 locations using its state of art technology platform. Cumulatively, has issued more than 150,000 policies covering various products till date.

FGI is a joint venture between Future Group, owning 74% stake and Generali Group owning 26% stake. The company achieved a GWP of Rs 1,034 Crore for the year ending March 2012 and Rs855 Crore for the 9 months ended December 2012. It has issued over 840,000 policies and has settled over 100,000 claims in FY13. Future Generali India Insurance is currently active through 83 offices with about 5900+ agents

Domestic News

No insurance for Indian filmmakers hit by actor’s jail sentence

The recent jail sentence of Indian actor Sanjay Dutt has stressed the need of insurance coverage for losses related to an actor's absence. Mr Dutt is an Indian film actor, producer and politician, known for his work in Hindi cinema. On 21 March 2013, Supreme Court of India convicted Mr Dutt in the illegal possession of arms relating to the 1993 Mumbai blasts case and sentenced him to five years imprisonment.

Earlier he had been sentenced to 6 years imprisonment by a TADA court. He has been ordered to surrender within four weeks from 21 March 2013 when the judgement was given. While film insurance policies do cover losses from an actor's absence, these are limited to cases of illnesses or death, according to a media report. Such policies do not offer coverage for absence due to other reasons, meaning that theRs. 2.5 billion invested in movies that will involve Mr. Dutt will be losses for film-makers, the report added.

IRDA plans to make third party motor insurance plans valid for 2 yrs

The Insurance Regulatory and Development Authority (IRDA) is considering to make third party motor insurance policies valid for two years. IRDA is working on a draft two-year motor policy. The move is expected to solve the issue of large number of vehicles running without cover. At present, the motor insurance policy is valid one-year term. It is a win for customers, too, as long-term policies could be priced lower, with insurers factoring in the no-claims discount, and also relieve them from the burden of the annual renewal, according to industry experts.

Motor insurance covers one’s own and third party damage to property or life. Vehicle owners have the option of choosing between a standalone (third party) and a comprehensive cover. Though it is mandatory for vehicles to have an insurance cover, it is estimated that nearly 70% of two-wheelers and 35% of four-wheelers are uninsured.

ING completes sale of interest in ING Vysya Life

ING on 22nd March said that it has completed the sale of its 26% interest in ING Vysya Life Insurance Company Ltd to its joint venture partner Exide Industries Ltd. The divestment, which does not have a material impact on ING Group’s results, is part of ING’s earlier announced process to divest ING’s insurance and investment management businesses. The process to divest the other insurance and investment management businesses in Asia, including ING’s fund management operations in India, is on-going. Any further announcements will be made if and when appropriate. The divestment does
not impact ING Vysya Bank, a publicly listed Indian bank in which ING has a 44% stake.

Agencies issue updated leveraged lending guidance

Federal bank regulatory agencies on 21st March released updated supervisory guidance on leveraged lending, which has been increasing since 2009 after declining during the financial crisis. The guidance from the Federal Reserve Board, the Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency (the agencies) covers transactions characterized by a borrower with a degree of financial leverage that significantly exceeds industry norms.

The guidance replaces guidance issued in April 2001. Before the financial crisis, the volume of leveraged credit transactions grew tremendously and participation by non-regulated investors willing to accept looser terms increased. While leveraged lending declined during the crisis, volumes have since increased and prudent underwriting practices have deteriorated. For example, some debt agreements have included features that weaken lender protection by excluding meaningful maintenance covenants and including other features that can limit lenders' recourse in the event of weakened borrower performance.

In addition, capital and repayment structures for some transactions, whether originated to hold or to distribute, have been aggressive. Management information systems at some institutions have proven less than satisfactory in accurately aggregating exposures on a timely basis. It is important that banks provide leveraged financing to creditworthy borrowers in a safe and sound manner.

Insure yourself against critical illnesses

Critical illnesses like heart conditions, cancer, diabetes, stroke, paralysis require prolonged and expensive treatments. Indemnity health insurance plans, with limited sum insured, are typically insufficient to meet the expenses of such treatments. Moreover, when a critical illness strikes, it often impairs the earning ability of the patient. If the patient happens to be the chief earning member of the family, there may be serious repercussions – loss of income and drastic change in the standard of living. To tackle the financial fallout of such critical illnesses, insurers offer special policies called critical illness policies.

Critical illness policies offer the insured a pre-stipulated payout on being diagnosed with a specified critical illness, regardless of whether the treatment has started or if the patient has been hospitalised. With the lumpsum in hand, the patient’s family can decide on the required treatment. The biggest advantage of a critical illness cover is that, one can meet the costs of treatment without exhausting years of savings. Moreover, the payout may also help the patient’s family deal with the loss of income at least on a temporary basis. Read more…

HDFC ERGO launches ‘Student Suraksha - Student Overseas Travel’

Today studying abroad sounds thrilling and exciting. It not only allows students to live their aspiration but also gives them a direction to realise their dreams. But living away from home is not easy.  There is always a need for someone to take care of your worries and be there with you at the time of emergency. Therefore it is important for all students to chalk out a plan that can help them stay hassle free and concentrate on their study abroad.  

HDFC ERGO General Insurance Company Limited, India's' 4th largest private sector general insurance company, announced the launch of its new policy – ‘Student Suraksha – Student Overseas Travel’, a policy specially designed keeping in mind the needs of Indian students who are planning to pursue higher education abroad and for existing Indian students who are already studying abroad. Read more…

IRDA to investigate money laundering allegations

The Insurance Regulatory and Development Authority (IRDA) has taken up the alleged money laundering issue with the chief executive officers of HDFC Life Insurance, ICICI Prudential Life Insurance and Max Life Insurance. “In response to the reports of sting operation conducted by Cobrapost.com alleging money laundering, the Insurance Regulatory and Development Authority has immediately taken up the matter with the CEOs of HDFC Life Insurance Co. Ltd.,

ICICI Prudential Life Insurance Co. Ltd. and Max Life Insurance Co. Ltd. In this regard, the Authority has also called for relevant data for initiating appropriate action,” IRDA said in a circular on 22nd March. ICICI Bank, HDFC Bank and Axis Bank are the bank partners that sell insurance products of ICICI Prudential Life, HDFC Life and Max Life respectively.

On 14th March, Cobrapost.com has alleged that employees of some branches of ICICI Bank, HDFC Bank and Axis Bank were violating anti-money laundering laws norms. Cobrapost had released the contents of purported video recording of officials of these banks allegedly agreeing to receive unverified sums of cash and put them in their investment schemes and benami accounts in violation of anti-money laundering laws.

Following the expose, the banks had commissioned enquiry and had suspended the employees caught on hidden camera. RBI has also started probing the headquarter and branches of these branches and have asked information from them. The central bank said final reports will be completed by March 31 and thereafter further course of action as necessary will be initiated. 

International News

US economy will grow despite spending cuts: Kurt Karl

After 20 March 2013 decision by the Federal Reserve to maintain the target Fed funds rate at zero to 25 basis points, Swiss Re’s Chief Economist, Kurt Karl, commented: “Triggering the sequestration will slow growth and delay the first rate hike by the Fed into early 2015. Karl added: “If present trends continue, the unemployment rate will fall below 6.5% in the first quarter of 2015, so the Fed’s first rate hike is unlikely to come any time sooner. Nevertheless, yields on the 10-year Treasury notes are expected to rise modestly this year and next, reaching about 2.6% by end-2015 as economic activity picks up.

“Though allowing sequestration to be implemented is not sound fiscal policy, it will reduce the deficit. Additionally, it will weaken economic growth this year by about 0.5%, deferring monetary tightening. Our baseline scenario assumes that more finely-tuned policies will be put in place over the next few months to reduce the dampening impact from the sequestration, so growth will be about 2% in 2013.”

He further added: “Economic developments remain uneven in the Euro area. Economic indicators have rebounded in Germany, but have remained weak in many other European countries, particularly Italy and France. We currently expect the mild recession to continue in the Euro area, with real GDP growth of -0.3% in 2013. “The lack of growth is one important factor that makes the resolution of the Euro area debt crisis so difficult.

An excessive focus on fiscal austerity last year has probably contributed to the deepening recessions in the periphery. The focus now appears to be shifting gradually towards tolerating deficit overshoots caused by worse-than-expected economic performance. The key to longer-term sustainable growth, however, lies in further structural reforms that are conducive to growth and these, if implemented, will only have an impact over the next five years."

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