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Monday, September 12, 2011

Sanlam Group invests in Shriram Capital

Shriram Group has entered into a joint venture with Sanlam Group of South Africa. This deal involves a Rs 2000 crore investment by Sanlam Group in Shiram Capital which is the financial wing of Shriram Group. This would also result in a 26% stake transfer. Though these two companies have been involved in insurance joint ventures before, this is the largest still now. It is for the second time that an outside company will hold stake from Shriram Group. Till a few months back the whole equity is owned by the Shriram Ownership trust until TRG picked 15% stake by investing around Rs 700 crore.

This deal also gives Sanlam Group access to the Indian market. From Shriram Group’s perspective it is a strategic venture which is meant to expand their financial arm. Sanlam’s investment would provide for up-streaming life and general insurance and would also include a cash component. In this way, Shriram Capital would still hold 100% equity which Sanlam Group would indirectly own 26% holding in the insurance venture by virtue of its 26% stake in Shriram Capital. The deal would take six to nine months as they await approvals from IRDA and Sebi

Friday, September 9, 2011

Motor Insurance India registers 22% growth this quarter

Motor Insurance India has had a shining last quarter as they registered a 22% growth in the topline with a total premium collected being Rs 14,046 crore. This is a direct result of IRDA allowing insurance companies to hike premium on third party cover by 10% for cars and upto 65% for commercial vehicles from April 2011, For the same period last year, the premium collected was Rs 11, 478 crore. The premium collected in the third party cover went up to Rs 2.043 crore compared to Rs 1467 crore (a whopping 39.2% increase).

In India third party insurance is mandatory for all commercial vehicles. Hence another reason for this topline growth can be ascribed to the rising number of new vehicles on the Indian roads. However with the recent hike in the interest rates by RBI, it is reported that demand for cars have dropped and ever since the car manufacturers are introducing attractive schemes to boost sales.

In times of these decreasing motor demands, it remains to be seen whether the motor insurance sector can sustain this growth they achieved this quarter.

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IRDA withdraws the controversial 4.5% guaranteed return on pension products

Life Insurance Companies in India can rejoice at the IRDA’s withdrawal from the controversial 4.5 per cent guaranteed return on pension plans. Usually these returns are fixed according to the reverse repo rate. Reverse Repo rate is the rate at which banks deposits their excess funds in the Reverse Bank of India (in simple words it is the rate at which RBI borrows from the banks). The mandatory return on these pension products was supposed to be 50 basis points more than the reverse repo rate. A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. For example, if the RBI raises interest rates by 50 basis points, it means that rates have risen by 0.50% percentage points. If rates were at 2.50%, and the RBI raised them by 0.50%, or 50 basis points, the new interest rate would be 3.00%.

However amidst this decision the Indian life insurance frontrunner Life Insurance Corporation, India (LIC) has set to offer upto 6% return on it’s unit linked pension product, Pension Plus. Even during the time when the mandatory 4.5 % return was in effect, LIC was the only company to have offered such pension plans. The private players refrained from taking such a risk. The unpopularity of this guideline has forced IRDA to revise it. This revised guideline talks about non zero or capital return instead of a fixed return. Although seeing LIC’s magnanimous premium collected (Rs 400 crore) since the last year through Pension Plus stands testimony to the fact that the guaranteed return guideline should actually work, we should not overlook the fact that other life insurance companies are far behind LIC in terms of size and penetration.

Now we shall all have to wait and see what the private insurers have to offer for pension products.

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