Third Party Car Insurance rates hiked.

The revision of the motor third party premium rates are out and will be in effect from 1^st April 2014. Earlier Insurance Regulatory and Development Authority (IRDA) had proposed to increase the premium by up to 137 percent. However the recent revised rates released by IRDA shows a marginal addition of around 9-20 percent (depending on vehicle type) to the existing third party premium rates.

The private car category will see an increase of around 19-20 percent while the two-wheeler category will be increased by 9-10 percent. For hired vehicles with four or more wheels and carrying capacity exceeding the number of passengers and three-wheeled passenger vehicles on hire with capacity exceeding 17, IRDA has not changed the current rates. For the taxi segment (four-wheelers for carrying passengers, on hire), a rise of 19-20 per cent was announced. For auto-rickshaws (three-wheeled vehicles carrying not more than six passengers), a 10 per cent rise in motor third-party premium was announced.

The table below will explain the increase applicable to you as per your vehicle specification (Private vehicles)

Category	2013 (premium)	2014 (premium)
Private cars (not exceeding 1000 cc)	941	1129
Private cars ( exceeding 1000 cc, but not exceeding 1500 cc)	1110	1332
Private cars (exceeding 1500 cc)	3424	4109
Two Wheelers (not exceeding 75 cc)	414	455
Two Wheelers (exceeding 75 cc but not exceeding 150 cc)	422	464
Two Wheelers (exceeding 150 cc but not exceeding 350 cc)	420	462
Two Wheelers (exceeding 350 cc)	804	884

*source - IRDA

The motor insurance segment consists of two parts – the optional own damage cover and the mandatory third party cover. Third party motor insurance is mandatory for vehicles plying on Indian roads. The third party insurance cover claims from third party arising out of accidents and damage incurred by the third party.

While no hike in existing rate is good news, the people of India can rejoice the fact that the hike is marginal and nowhere close to the proposed increase of up to 137 percent.

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Insurance for HIV Positive People in India

Insurance for HIV positive people in India may soon become a reality. In one of its most humanitarian moves, Insurance Regulatory and Development Authority (IRDA) of India has asked insurance companies to put in place a board approved underwriting policies with respect with life insurance for people living with HIV/ AIDS. The underwriting policy is to cover clear guidelines on life insurance with people living with HIV/AIDS (PLHA). IRDA has also asked the insurance companies to put in place underwriting policies for health insurance offered by life insurance companies to people acquiring HIV/AIDS after the commencement of insurance policy. Guidelines also facilitates conversion of the lump sum amount into an annuity for life, if the insured became HIV positive while holding the policy

Unlike India, insurance is available for the HIV people in the West. The Indian insurance market is quite aggressive on their financials and costing. The guidelines provided by IRDA are more humane and less lucrative. Experts feel that this initiative might not be welcome by the Indian Insurance Companies. That is, of course, unless IRDA decides to take a leap ahead and impose mandatory bindings on the insurance companies.

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What the Insurers Need

The insurance business in India has come a long way since the Insurance Act of 1938. Some of the key milestones in this sector since independence of India would be the merging of all life insurance companies to form Life Insurance Company of India (LIC) in 1956, the merging of all general insurance companies to form four General Insurance Companies (National Insurance, New India Assurance, Oriental Insurance and United India Insurance) and the deregulation of the Insurance Sector in 1999 allowing foreign players to operate in the market. So is this market movement from monopoly to oligopoly really proving to be worthwhile for the Insurance Companies?

The ironclad regulations thrown by IRDA from time to time, economic and political pressures and tough competition has made it difficult for the insurance companies, especially the private players, to make any meaningful business out of it. This year we have already witnessed the exit of New York Life Insurance from Max India Limited. Others following suit might be ING and HSBC. Future group also plans to sever its ties with Generali while DLF wants to exit its tie up with Pramerica. Nine of the 23 private sector life insurers, including units of HSBC, Italy's Generali and Dutch life insurer Aegon, lost money in the year ended in March. The joint venture between France’s Axa and Bharti Enterprises, owner of India’s biggest cellular carrier, has never made money. 

So to revive and attract more investors and foreign partners certain flexibility must be introduced so that the insurers would be able to compete for higher margin and aim for higher penetration. Currently the penetration is only 4.4% in India against 8% in Japan and 9.5% in Britain. Business margin for India is also around 10-15% against 20-25% in China and 30% in Hong Kong.  A helping hand would be the recent proposed hike of FDI cap to 49%. It must be allowed to pass without any political mess up. Additionally the IRDA must have a more benevolent approach towards private players. Because of strict regulations, insurance products are mostly similar and hence competition is high. Without the option of product differentiation margins for insurers would continue to be meager. 

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IRDA to step in over cancellation of cashless cover by PSU Insurers.

On July 1st, 2011 four PSU firms for General Insurance viz. National Insurance, New India Assurance, Oriental Insurance and United India Assurance had stopped their cashless hospitalization facility. The reason was overcharging by the hospitals and non standardization of the treatment charges. Insurance companies have a network of hospitals, known as PPN, which offers health insurance services under cashless facility. The network hospitals are decided through the agreement between the Third Party Administrators (TPAs) and the hospitals and the list is amended from time to time. Insurance Companies have claimed that the cost to claim ratio was around 140 percent of the premium received under the health portfolio as on June 2012. Some 150 hospitals were scrapped from cashless hospitalization scheme. While the insurance companies complain of overcharging, the private hospital authorities maintain that they cannot conduct treatment at Central Government Health Scheme (CGHS) rates.

Initially Insurance Regulatory Development Authority (IRDA) took a rain check when their intervention was sought. They felt that the insurance companies and the hospitals need to work out an amicable solution themselves. Now with the policyholders stranded for no fault they have decided to step in. In August this year IRDA came up with a circular stating that policyholders would continue to get cashless hospitalization facility even if the hospital were delisted from cashless cover by the Insurance Companies. They are now in the process of standardizing the treatment costs as well as look into the issue of overcharging

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IRDA introduces the declined risk pool for the Indian Motor Insurance industry.

The last fiscal was not at all encouraging to the Indian Motor Insurance Industry. The loss ratio currently stands at 145%. Simply put for every Rs 100 premium paid, the loss incurred is Rs 45. Under the Indian Government Laws, third party cover is a mandatory purchase along with the purchase of your vehicle. However due to high losses, private insurers refrained from providing third party covers. Therefore Insurance Regulatory and Development Authority (IRDA) came up with this motor third party pool in 2007, where premiums pertaining to third-party risks collected by all general insurance companies are added to this pool. All claims paid are debited to this motor pool. Based on the market share of the insurance companies, the losses from the third party pool were shared by the insurance companies. The third party premium for all vehicles is regulated and insurers have no role in deciding the premium. As a result efficiencies have found its way and even those insurance companies which were not aggressive with car insurance had to bear the brunt of these loses because of their market share.

However this third party pool would undergo a change from April 1st, 2012. IRDA has already come up with their guidelines addressing the concerns raised by the loss making car insurance market. They have recently formed another pool called the “declined risk pool for third party motor policies”. This new pool would apply to commercial vehicles for standalone third party insurance liability. Comprehensive motor insurance cannot be settled from this pool. Third-party insurance cover protects the vehicle owner from any financial liability in case of damage to life or property in an accident to the third person. Comprehensive motor insurance adds the personal vehicle damage cover also to it. Comprehensive motor insurances are hence more expensive. The removal of the comprehensive policy would shrink the size of the newly proposed motor pool to a quarter of its original size. The present size is about Rs 6000 crore. According to IRDA, the insurance companies would retain 20% of the gross premium in their own account, 10% would go to General Insurance Corporation of India and the rest 70% would go to the motor pool.

This new declined pool would hopefully reduce the loss ratio of the motor insurance market and make things more transparent and fair for the insurance companies. However in view of these new regulations and other inflationary measures, motor insurance premium might go up by 10- 15%.

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Indian Life Insurance Companies Vs IRDA

The Insurance Regulatory Authority of India (IRDA) has always been the responsible Big Daddy of the insurance industry in India. It has always tried to ensure that things are running smooth and that no one is unfairly holding an edge over the others. However of late, the relationship between IRDA and the Life Insurance Companies of India has been stained. Both sides have their own gamut of reasoning for this rift. IRDA complains of risky and unethical business by these life insurance companies. The latter on the other hand is claiming that the regulator’s tight guidelines are pushing them to adopt previously untried methods. The two major causes of frown for the IRDA are the use of foreign reinsurers by the life insurance companies and the introduction of umbrella products which offers multiple policies under one product.

Before moving to discuss the first issue it is imperative that we understand what and who these reinsurers are. Reinsurance is a form of insurance where the insurance companies redirect the risk to another insurance company for some commission. Some foreign reinsurers currently popular in India are Swiss Re, Munich Re. IRDA has no control over the foreign reinsurers. So by using reinsurers, life insurance companies are naturally making IRDA uncomfortable. IRDA reasons that the end user or the customer is not fully exposed to the risk which they face if they buy such products. For Example if the reinsurer defaults due to credit risk, it is transferred to the insurer and ultimately the customers. The reason why foreign reinsurers are popular is because they offer competitive rates. However exposure to credit risk default is also higher.

The second issue of IRDA is using umbrella products to bring in multiple policies under one. IRDA claims that when the life insurance companies submit their products for clearance, there are fewer funds. But once cleared the funds proliferate. These funds may be significantly smaller in value. Ultimately the customer ends up with a collection of funds which may actually not result in much capital gain. Interestingly though when the Mutual Fund industry had started launching similar products, the capital market regulator had asked them to bring it under one umbrella product. They claimed that this would help remove confusion from the customers.

On the other side of the coin, the life insurance companies feel that IRDA has come down harshly on every profitable idea in the past year starting from pension plans to highest NAV guaranteed products. Earlier in September 2010, the life insurance industry received a major blow due to the restrictions imposed on the ULIP products. Initially it was expected that within six months a recovery was evident. However it took much longer than that. Between April – December, 2011 the premiums collected by the life insurance companies went down 17% reported in the same period a year ago. Also the number of policies issued was down by 11%. It seems that IRDA is changing things too frequently and the life insurance companies are finding it difficult to absorb these changes in their business models. The resistance of the life insurers is meekly visible in the absence of any pension plans after the guidelines were revised to ensure guaranteed returns.

IRDA has also recommended zone-wise distribution tie-ups between bank and insurance companies. This bancassurance guideline has not gone very well with the life insurers. They feel that this would complicate things as the whole business of bancassurance is based on commitment from either side. The financial institutions still have some way to go before they can successfully implement the zone-wise distribution recommendation.

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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 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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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

Delhi High Court questions HIV/AIDS exclusions from Health Insurance

In response to a petition filed, the Delhi High Court has questioned IRDA and the Health Ministry as to why Health Insurance policies have an exclusion for HIV/ AIDS. Most insurance contracts have a clause in the health insurance policy documents which states that the policy does not cover treatment for HIV/AIDS even if the policyholder might have contracted it at a far later stage than when he (s) got admitted into the policy. In the view of the court, this tantamounts to a discrimination in a country which has the third largest number (24 lakhs) of HIV infected people in the world. If the insurance companies need to cover HIV/AIDS as a part of the standard list of ailments that are covered, one might see a little increase in health insurance premiums. One however tends to agree that there is no basis to discriminate against HIV/AIDS patients and not provide them an insurance cover.

Axis Bank obtains regulatory approval for Max New York Life stake

Axis Bank, which entered into a Bancassurance arrangement with Max New York Life last year, has received approvals from RBI and IRDA to acquire 4% of Max New York Life at Rs 72 crores. The stake has been acquired by Axis Bank at par and is quite obviously at a discount to Max New York Life's market value. Axis would have bargained to acquire this stake in lieu of entering the distribution agreement with Max New York Life. Previously, Axis Bank had a Bancassurance agreement with MetLife, and accounted for more than 50% of MetLife's total business.

Acquiring stake of the insurer by the bank seems to be a new trend in the Bancassurance space. As the distribution reach provided by banks becomes more crucial for insurers desperate for market share, banks will demand a bigger pound of flesh and ask for more significant stake in the insurer. PNB, one of the largest banks in India, is in the final stages of selecting its Bnacassurance partner for life insurance. Bharti Axa Life, MetLife and Aviva are in the fray. It would be interesting to see how much stake of the insurance company PNB demands.

Impact of Direct Tax Code on Life Insurance

Come April 2012,  and the Direct Tax Code (DTC) will come into effect.

Let us look at the impact that it might have on life insurance policies.

Currently, insurance premiums paid (upto Rs 1 lakh) and insurance policy proceeds are tax exempt. Once the DTC comes into effect, insurance policy proceeds will be tax exempt if and only if the policy maturity term has been reached (or on death, whichever is earlier) and provided the sum insured is 20 times or more the annual premium paid.

Tax savings is one of the major drivers of life insurance sales in India, as both premiums and policy proceeds are tax exempt. This will have a major bearing on the sales of life insurance policies as most policies (except the pure term insurance covers) have a sum insured of less than 20 times the annual premium. Another feature of the life insurance market is that single premium policies (which are mostly an investment tool) are very popular. These single premium policies have a very low degree of cover. The new DTC will make single premium investments less attractive than earlier. Single premium currently accounts for more than 50% of the total insurance market in India. 

So we expect to see increased sales of pure term products and protection intensive life insurance policies from 2012. We feel that that is the way it should be. In India, life insurance has begun to have less with insurance and more with investment. Before the regulations of Sep 2010, most of the ULIPs were inefficient, expensive investment products masquerading as life insurance products. With IRDA mentioning a lock in of minimum of 5 years on insurance policies, and DTC ensuring higher insurance multiple, chances are that we will begin to see more long term protection policies.

IRDA commissioning study on cost of Regulation

The insurance regulator, IRDA, has mentioned that it will commission a study to analyse the cost of the regulations that it has enforced on insurers, and thus the impact on the cost of insurance policies. Over the last year, there has been a spate of regulations by IRDA and this study will provide quantitative evidence of the impact of the regulations and if the regulator has over-regulated.

This is indeed a bold move and the study will be quite complex as data would be required from every insurance company in India. There can be different elements of increased cost due to regulation: cost of needing to report more, cost of needing more manpower to ensure statutory compliance, sales team trainings, cost of reprinting marketing literature, the opportunity cost of certain business lines turning unprofitable etc . The study will be of more crucial import to the life insurance industry as sweeping regulations were brought into effect from Sep 1 2010. IRDA also mentioned that insurance companies have to prepare quarterly filings, which has its own cost.

Studies of this type are regularly undertaken in other countries, most notably Australia. It would be interesting to note the impact that this study has on more thought through regulation. While insurance companies would not admit it publicly for fear of incurring the wrath of the regulator, there is a feeling among the life insurance companies that they have been over-regulated. But one cannot blame the regulator for this: the horrendous stories of misselling that the industry was resorting to cried out for some really strong regulation. The life insurance industry, in the longer term, will come out stronger because of the course corrections undertaken. The only area where we feel that the regulation has gone a little wrong is on pensions as that category has been more or less killed, but IRDA is relooking at the pension regulation if media reports are to be believed.

Pensions: Hope lurks

The new regulations for ULIPs that came into force from Sep 2010 effectively killed sales of pension products. Out of the 23 life insurance companies in India, only four life insurance companies launched new pension plans- SBI, LIC, ICICI Prudential Life Insurance and Aegon Religare Life Insurance. Pension sales , which accounted for nearly 30% of the market, reduced to a trickle. In fact, reduced sales of pension products is one of the key reasons why the life insurance market will see flat or negative growth in FY 2011 over FY 2010. The private life insurance companies have seen a degrowth of over 30% between Sep 2010 and Feb 2011 compared to a year earlier. 

The key reason for reduced sales of Pensions by the different Life companies was that IRDA mandated that there has to be a minimum assured return of 4.5% per annum. This guaranteed return created two issues:

a. It is too low a return for the customer to be of any interest when he sees returns around 10% in some traditional long term savings schemes

b. This creates  a problem for  the life insurer as  there are no long term instruments with tenures of 25 years plus which the Life Insurance company can invest in to assure this return.

The life insurance companies, through the Life Insurance Council, had made a representation to IRDA wherein they had request for higher equity allocation in the pension product. In all probability, the 4.5% guaranteed return may not be mandatory for pension products but may be just one of the different pension products that a company can operate, with a particular part of the pensions portfolio being booked under the guaranteed product. Policyholders would also have the option to choose non guaranteed pension products with a risk cover. It is also expected that IRDA will relax the mandatory purchase of annuity with 2/3 of the pension proceeds to about 50%.

We expect IRDA to come out with the new guidelines in the next few weeks. Pensions are too important a component of the Indian life insurance market to be allowed to wither away the way they have in the last 6-7 months. We hope that the corrective measures mentioned above will infuse new life into the health of pensions.  

Third Party motor insurance premium set to increase by upto 65%

Your car insurance policy has two components : Own damage and third party.

Own damage , as the name implies, is when your car is insured for the damages that it might incur in an accident, or the insurance for your vehicle should it be lost etc.

Third Party: This is the crucial part of the insurance where you are protected for the damage that you or your car might cause to others. For example, if there is an accident involving your car where another car is damaged and there is a loss of life, you need to have protection to pay for the damages of the other car and also compensate for the financial loss of the other life. Not having this third party car insurance can be financially crippling.\

Third party motor insurance is compulsory by law. No individual is allowed to drive one's car without third party motor insurance. Third party motor insurance is also typically quite cheap. For example, for a private car, in most cases it is less than Rs 1000 per year. IRDA, the insurance regulator, still controls the pricing of third party motor insurance while it does not control the pricing of any other insurance risk. This is called tariff. The general insurance sector was detariffed in 2007 with the exception of motor insurance third party.

India is perhaps the only country in the world which has unlimited liability covered in third party motor insurance for unlimited periods of time. Thus an external party, in theory, can file for  a 100 cr compensation, even 20 years after an accident has happened! Third party claim amounts in recent years have been on the rise due to greater earning potential of individuals in general, and earnings being projected over a  longer life span.

General insurance companies in India have been bleeding because of the motor third party premiums being kept very low by the regulator. A third party motor pool has been created to pay for all the third party related claims and that has had a huge deficit . Insurance companies have been asked to provision for an additional 3500 crores to take care of this liability. And they might need to provision even more later. This pool has had such an impact that many insurers have needed to infuse additional capital to ensure that they maintain the solvency margins stipulated by IRDA. Motor third party has proved to be the curse of the general insurance industry in India.

However, IRDA has now announced new pricing for the motor third party insurance which has come as a welcome relief for all the general insurers. Effective 25th April, third party motor insurance rates will go up between 10% and 65% depending on the category of the vehicle.

The following are the basic features of this price increase effected by IRDA:

1. The increased rate for each class of vehicles has been decided after looking at the claims cost of that category of vehicles, claims experience and the cost inflation index determined by CBDT

2. Earlier the rates were reviewed every 4 years, but now the rates will be reviewed every year. This is a welcome move

3. IRDA has sternly warned the insurers that they should not shy away from writing third party motor insurance business and should make this available at their offices

The bigger increase has rightly been in the Commercial Vehicles segment which was the loss leader. While the insurance industry wanted almost a 80-90% increase, they have been allowed a 65% increase which is also quite substantial

Term Life Insurance premiums might come down further

Term Insurance, which is a pure protection plan without any savings component, might witness a further fall in premium rates in the coming months. While rates have fallen more than 50% in the last few years, these premium rates will be revised downwards soon. This is because IRDA is about to approve the new mortality rate tables based on the experience of the different life insurance companies between 2008-2010. The earlier rates used the LIC mortality table of 1994-96. Since then, the life expectancy has gone up leading to a drop in mortality rates. The private insurance companies, which were not in existence during 1994-96, started using LIC mortality tables as the base but with time started using their own mortality experience. Thus there was some revision in mortality rates, but with the new tables being formally accepted, we may see a further fall.

The new mortality tables  that are about to be adopted breaks the data up in terms of location, smoker vs non smoker, gender etc. This will allow the life insurance companies to fine tune their pricing approach, applying different rates depending on location,sex etc instead of a blunt, flat pricing leading to subsidisation of one segment by the other. Intense competition among the 22 life insurance companies will also ensure that the full benefits of the reduced rates will be passed on to the consumers.

Reliance Life Insurance's deal with Nippon Life may get delayed

Nippon Life, which announced a deal to pick up 26% stake in Reliance Life Insurance just around the time the Tsunami struck Japan might have to wait a bit longer before the deal goes through. As per local rules in India, a company needs to be in existence for 10 years before it can divest any stake. Reliance Life completes 10 years in January 2012, and if the deal is to be completed before that, it will need special approval from the regulator IRDA. Reliance Life came into existence by buying the erstwhile AMP Sanmar.

Nippon Life is to pay Rs 3062 crores for a 26% stake, valuing the company at around 12250 crores.

In our humble opinion, the valuation seems way too inflated given the scale of operations of Reliance Life. But then, the Japanese are well known for overpaying!