Metlife India sells 30% stake to PNB

Very soon Metlife India would be known as PNB Metlife India. India’s 2nd largest nationalized bank, Punjab National Bank (PNB), has decided to take a lion’s share of 30% stake and occupy a dominant position in Metlife’s Bancasurance space (Currently Metlife has tie-ups with Karnataka Bank and Barclays). Rajesh Relan, MD, Metlife India, opined that the addition of PNB will help Metlife convert into a significant player in the insurance industry and in return the insurer can provide insurance expertise and bancassurance capabilities that will be an asset to PNB.

The edge that Metlife enjoyed over a dozen suitors was that it has a diversified Indian shareholding which helped PNB become the dominant shareholder. Metlife will issue fresh shares to PNB which will increase the size of the company’s capital to Rs. 2,596 crore and later buy stake from the other existing stakeholders to maintain its stake at 26% within 120 days. PNB’s entry will dilute the equity of all the existing shareholders which include M Palonji and Co, Jammu & Kashmir Bank and IGE (a Pune-based company), besides a clutch of private equity investors.

Another positive aspect of the move is that PNB will be able to take insurance to the mostly untapped rural and semi-urban pockets of India. Statistics show that 60% of PNB’s branches are in the rural and semi-urban areas, which can help augment the insurance penetration in the country. Industry analysts have also welcomed the partnership believing that it has the potential to drive Metlife into the top-tier of the Indian life insurers and also go a long way in doubling its market share.



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IRDA Penalizes New India Assurance

Insurance Regulatory and Development Authority (IRDA) has imposed a fine of Rs 100,000 (Rs 1 lakh) on New India Assurance. The penalty came from a case of non-refund of Mediclaim to a policy holder. The insured person, Shri Hemendra Mehta, was staying abroad and refund was refused on this ground. When Shri Mehta emailed New Assurance India that refund can be considered for the period of stay outside India during the policy period, they didn't respond (Email dated 24.11.2009).

So the matter was taken up by IRDA and the regulatory body decided to penalize New India Assurance. With this, the IRDA has once again exemplified the tight regulatory control over the insurance companies. Not too long ago, SBI life faced IRDA's ire. (Read the whole article here).

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Ambani brothers may meet head on in the Insurance market.

The strife between the Ambani brothers may take another interesting turn with The Competition Commission of India’s (CCI) latest announcement. The commission has given a go-ahead to the 74% acquisition bid by Mukesh Ambani’s Reliance Industry Limited (RIL) from each of Bharti AXA Life Insurance and Bharti AXA General Insurance. However before the actual action begins, the acquisition is awaiting some more approvals including the implementation of the newly proposed IRDA guideline on equity stake selling (find out more about this IRDA guideline here

For the financial year 2011, Anil Ambani's life insurance venture showed a first year premium of Rs 3,000 crore while Bharti Axa could collect only Rs 360 crore. In the general insurance, Bharti Axa recorded Rs 550 crores as against Rs 1655 crores from Reliance. While Bharti Axa life Insurance ranks 20th amongst 23 life insurance companies and Bharti Axa General Insurance ranks 15th amongst 19 general insurance companies, Anil Ambani has managed to find a place in the top 5.

So is Mukesh Ambani worried? A man with such a brilliant smile would never be.

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IRDA plans to change lock in period for stake sale

Effectively managing capital and coping with long gestation period are two factors which determine which companies survive in the competitive insurance market. Earlier this year in June, Sunil Mittal decided to sell its 74% stake both in Bharti Axa Life Insurance and Bharti Axa General Insurance to Mukesh Ambani precisely for these reasons.

Acknowledging this, Insurance Regulatory and Development Authority (IRDA) already has Article 6AA of the insurance act in place. However some aspects of this act may soon change. Currently the guidelines says that promoters holding a 26% stake in life insurance companies needs to be locked in for a period of 10 years. But news is brewing that a new IRDA guideline would allow promoters to escape as early as 5 years. The new draft however does not apply to those promoters subscribing to IPOs of insurance companies. The draft guideline is expected in August and after public comments and recommendations, the final guideline is expected in October.

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This week’s top Investment News in the Insurance Sector

Some of the top investments news in the investment sector this week

• Reliance Life Insurance plans to divest 23% stake in the domestic public and private lenders or banks. This come after Reliance has already signed a pact to sell 26% to Nippon Life. Some of the banks which have taken interest in this deal are Axis Bank and Syndicate Bank
• Exide plans to pump in another round of investment in ING Vysya Life Insurance Company. This time the amount would be somewhere around Rs 150 crore. It should be noted that Exide has already been investing in ING Vysya Life Insurance.
• Piramal Healthcare is planning to buy Enam Financial’s stake in ING Vysya Life Insurance. The present valuation of the insurance company stands at Rs 2400 crore. Last year Piramal Health got Rs 17,190 crore from Abbott Laboratories for its generic unit.
• Life Insurance Corporation of India (LIC) plans to invest more than Rs 2 trillion through the March fiscal. Apart from this its planned investment in equities will exceed last year’s Rs 400 billion.

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SBI launches Flexi Smart Insurance

SBI Life, the joint venture between State Bank of India and BNP Paribas, has launched a new Variable Insurance Product (VIP) called the Flexi Smart Insurance. Under this the customer would pay a minimum premium of Rs 1500 per month to subscribe and with the flexibility to pay premiums at yearly, half yearly, quarterly or monthly. This premium is liable to earn an interim interest of 7% during 2011-2012 apart from the additional interest rate declared at the end of the financial year.

VIPs were earlier known as Universal Linked Plan. Earlier IRDA issued a new guideline to change its name to VIP and also asserted that these products be offered only on non-unit lined products. SBI Life is the first to introduce VIP with the launch of Bima Account Number 2. The Flexi Smart Insurance is their second offering so far.

The VIP offers choices across different levels of risk exposure. It can also provide stable returns and safe investments for the risk-averse customers. The key feature is that it gives the customer to vary the assured amount as well as premium payment.

SBI Life Faces Regulator's Ire

IRDA, the insurance regulator, has levied a fine of Rs 70 lakhs on SBI Life Insurance company for paying commissions to a master policy holder. As per the rules in India, Insurance companies can pay commissions only to life insurance agents, corporate agents or brokers, and not to a policyholder. There were 14 instances of commissions being paid, and IRDA has levied a fee of Rs 5 lakhs per instance, totalling to Rs 70 lakhs. SBI Life is a joint venture between SBI, India's largest bank and BNP Paribas Cardif.
In all insurance companies where one of the prominent share holders is a bank, the regulator needs to watch out for this particular practice: the bank which owns the insurance company bundles an expensive insurance policy with their loans disbursed. A retail or corporate customer, seeking a loan from the bank and at a moment in time when the bank is in a position of strength, cannot refuse the insurance policy. This is especially true if there are veiled indications that the loan disbursement itself might not go through if the preferred insurance policy is not bought.

HDFC Life Insurance

HDFC Life has stated that they are looking at listing in the Indian equity markets within the next two years. The insurance regulator, IRDA, is in the process of preparing the guidelines for listing for Indian life insurance companies. Chairman of HDFC, Mr Deepak Parekh, mentioned that they would also be looking to raise funds through the FDI route when the FDI ceiling on life insurance is increased from 26% to 49%.

In a separate development, HDFC Life has been ranked as the 40th best place to work for employees in a Great Places to Work Survey. At a time when there is a significant difficulty for attracting human talent to the Life Insurance industry because of the the challenges it is facing, this is indeed a positive development. However, a words of caution here for job aspirants: the team here at PolicyTiger, having been part of organisations which have ranked very well in the Great Places to Work Survey, does not feel that it counts for much!

Delay in Life Insurance Partner Selection for PNB

PNB, which is in the final stages of selecting its Life Insurance Partner, has announced that it will do so by September 2011. The earlier expectation was that they would decide by July.After an elaborate selection process, the list of prospective life insurance suitors has been reduced to two companies- Aviva Life and MetLife. Bharti Axa, which was also in the final round, is now out of the race post the acquisition by Reliance. One wonders why the selection process has been delayed. Some sources feel that the recent developments in the field of Bancassurance where a bank might be allowed to tie up with two life insurance partners might have brought in a new dimension to the decision. Also, PNB is looking at acquiring a substantial stake in the life insurance company that it ties up with. This practice has caught the attention of IRDA which is looking into the matter.
We will watch the developments closely and keep you informed.

IRDA guidelines for Life Insurance Companies: Continued

It is learnt that IRDA might be scrapping the requirement which stated that a life insurance company which desires to go public needed to be profitable over the past 3 years. This will come as a relief for companies like ICICI Prudential, HDFC Standard Life and Max New York Life which were otherwise eligible togo for an IPO but struggling on the profitability norm. Life Insurance Companies , operating in a business which is capital intensive, has been struggling to raise capital as the IPO norms have been strict. At the same time, they have also been handicapped by the fact that the FDI norm on Insurance has been capped at 26% and not increased to 49%. On the other hand, IRDA has come down heavily on the charges levied by life insurance companies on their customers (effective Sep 1 2010) which has reduced profitability margins of these organisations

IRDA's guidelines on IPO of Life Insurance companies.

The Insurance Regulatory and Development Authority (IRDA) has asked for feedback and recommendations on their newly proposed guideline formally called The IRDA (“Issues of Capital and Disclosure Requirements for Life Insurance Companies”) Regulations, 2011. The guideline maintains that the life insurance companies in India wishing to go public must have spent at least 10 years in the business and have must showed a satisfactory profit record in the past six quarters. In simple words it would consider only the frontrunners in this business. Currently only two insurance companies, viz. ICICI Prudential and HDFC Standard Life Insurance, meet the 10 year eligibility criteria. However if they wish to raise an IPO, they have to first get the approval nod from IRDA and only then can they approach SEBI. Apart from the tenure and profitability, the IRDA would also consider the company specific risk factors and the transparency of the company’s disclosures before they give the final nod.

In a way the new guideline provides security to the common man because it shall endorse only those companies who are serious in this business and have done well. While on one side it provides security, on the flip side it handicaps an important business aspect of the life insurance companies. The Section 6A of the Life Insurance Act allowed transfer of share below 5 % without the approval of any regulator. But if this new guideline comes into effect, it shall override this benefit for a period of 10 years. Keeping all other aspects aside this can prove to be a direct hit on the mergers and would lay the platform for a highly competitive life insurance business.