There is a shift from Ulips to traditional products

SBI Life, the life insurance subsidiary of State Bank of India, has expanded its operations despite Insurance Regulatory and Development Authority's sweeping changes in the norms of unit-linked insurance plans from September last year.

MN Rao, managing director and chief executive officer of SBI Life speaks to FE about his strategies to cope up with regulatory challenges. Excerpts:

How SBI Life is faring in the days when the life insurance industry's numbers are falling?

Business so far has remained satisfactory at SBI Life though falling in line with industry. We have done R2,050 crore of business in the new business premium until August 31 in this financial year, as against R2,390 crore in the corresponding period of the last financial year, thus witnessing a fall by 14% during the period. Now the product mix has changed. We have shifted to low-ticket size product. Still, the total product portfolio remains unchanged from July last year to July this year. Till July during this financial year, our premium has gone up by 3% year-on-year. However, from August 2010 to August 2011, our performance is down by 14%. It has happened as August 2010 (the sales were very good during that particular month) was the last month for all of our old products and we had launched new products in September 2010 in line with the new regulations of regulator Irda. In total business premium, we are growing over last financial year on yield-to-date (YTD) basis in August 2011 when we achieved a sum of R3,983 crore, as compared to R3,706 crore in the corresponding period of the last financial year, thus recording a growth of 7.5%. Going forward, we do expect to show a growth on new business front and total business premium which are expected to go up by 10% and 15-16% respectively by the fiscal-end, as compared to our performance during the last financial year.

While the current volatile capital markets which may nots be conducive for Ulips, how are you trying to push traditional products?

As of now, our product mix-Ulip and traditional and corporate solutions plan (or group plans) is in the ratio 55:45. Total numbers of Ulips have fallen by 10% during August this financial year, when compared to the level of August 2010. Again, our traditional products have gone up by 125% during the period. Our group fund alone has increased by 15% during the same period.

Do you think the highest NAV products launched by insurance companies are misleading and Irda should take some action?

We do have highest NAV product, named as Smart Performer and it is doing well. The regulator is worried about administrative issue related to the product and how to make the disclosures to the customers about such products so that they get a fair deal. Life Insurance Council is working on it.

Has your investment portfolio fallen? Do you think that investment income will fall this year?

Nearly 55% corpus of our total assets under management (AUM) has been invested in equities. In majority of funds, our fund performance has been well so far. In most of the funds, we are in the top performer. In case the same market condition continues, we would invest R6,000-7,000 crore additionally in equities during the remaining part of this financial year. The balance amount would be invested in either G-sec or corporate bonds. There is a shift from Ulips to traditional products happening now. I think, it will stabilise after a year from now.

Do you have any capital infusion plans?

We had our last capital infusion to the tune of R500 crore in SBI Life in 2007-08. It was jointly done by the promoters like SBI and BNP. After that, there has been no requirement of capital infusion because of profitability. We first broke even in 2005-06. Except for a marginal loss, which was incurred by us in 2008-09 thanks to the market crash, we have continued to make profits constantly since then.

With SBI as the parent body, it was expected that SBI Life would emerge as a leader in the life insurance industry soon?

We started our operation some 10 years ago. We are the life insurer with the lowest operating ratio. Also, we are the largest player in the private sector in terms of total business premium as on July-end. The strength of SBI Life is primarily due to the support provided by the SBI. Most of the SBI branches are selling our products through bancassurance channel. On the selling of products of more than one insurers (which is permitted now) by the banks, a report has been submitted before Irda. We are in favour of selling two products each from life insurance and non-life insurance companies. We believe that sale of insurance product is a long term relationship with any bank. There should be close coordination between bank and insurance companies, not only for the sale of their products, but also for servicing of product and grievance redressal so that customers of the bank should have a choice.

New Ulip rules rob market of insurance

With flows for Ulips drying, life insurance companies invest just a fraction of what they did last year.

Indian bulls are missing their earlier close allies in the fight against the latest bear onslaught. Domestic life insurance companies, which had acted as a counterweight to fleeing foreign investors in the past, do not have enough dry powder now, as inflows into unit-linked insurance plans (Ulips) have fallen sharply.

Ulips, which used to account for 80 per cent of industry sales, have sunk since September 2010, when the Insurance Regulatory and Development Authority’s new rules made the selling of these hybrid plans less lucrative for both life companies and agents.

SHRINKING FLOWS Net investments by domestic institutions other than mutual funds
(Sep to Aug)	DII*	MF#	Difference
2006-07	18,683.03	6,884.50	11,798.53
2007-08	55,566.48	13,134.70	42,431.78
2008-09	47,806.61	8,373.00	39,433.61
2009-10	4,576.28	-26,067.50	30,643.78
2010-11	-128.93	-5,744.40	5,615.47
Figures in Rscrore # Source SEBI Data Compiled by BS Research Bureau * Source Exchanges

Lack of support from insurance companies adds to the woes of equities battered by foreign institutional investors (FIIs), say experts. Gaurav Dua, head of research, Sharekhan, said: “Insurance flows have slowed. This has impacted to the extent that there is no domestic support to absorb the selling by FIIs.”

FIIs have net-sold stock worth Rs 11,000 crore since the end of July. The BSE Sensex has lost a fifth of its value since January. According to the Business Standard Research Bureau, investments by life insurance companies in equities are down by 80 per cent since the Irda move. In the period between September 1, 2010 and August 31, 2011, net investment by the life companies was Rs 5,616 crore. That is a fall of 81 per cent from the Rs 30,642 crore deployed by these companies in the one-year period before the move.

Since there are no direct numbers in the public domain, this figure was derived by deducting the investments by mutual funds reported by the Securities and Exchange Board of India from the aggregate of domestic institutional investors reported on the exchanges. Domestic institutional investors refers to banks and financial institutions, but insurance companies constitute a major portion.

Insurance officials say equity inflows have fallen as the sales mix has shifted in favour of traditional policies. Unlike Ulips, where up to 95 per cent of the funds can be deployed in equity, traditional plans cap equity exposure at 25 per cent. After the new guidelines came into force, the traditional plans, which earn a relatively higher commission, have gained the attention of sellers. The mix between Ulips and traditional policies, which used to be 80:20, has, therefore, reversed. During April-July this year, life insurance companies collected Rs 26,794 crore by writing new policies and traditional plans accounted for nearly 80 per cent of these.

“Equity investments depend on various parameters like premium collection, sales of unit-linked plans, term plans and interest income, among other things. Across the industry, the premium collection has been down so far in the current financial year, largely due to the dip in sales in unit-linked plans. Looking at the present trend, it is highly unlikely that we would be able to match last year's investment figures during 2011-12,” said a senior official from Life Insurance Corporation (LIC).

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Not surprisingly, LIC, the largest institutional investor, has revised its equity investment plan for 2011-12. It expects to invest Rs 35,000-40,000 crore in the equity markets, as against an earlier target of Rs 60,000 crore. Equity investments by the insurance behemoth during 2010-11 shrunk 30 per cent to Rs 43,000 crore, compared to Rs 61,500 crore in the previous year. However,the official added, since prices are low, investors are able to shore up their stock portfolios by spending lower amounts of money.

“The measures taken by the regulator have changed the focus of insurers towards traditional plans. Though it is a temporary aberration, the slowdown in the sales of unit-linked plans has impacted the equity investments of all life insurance companies,” said Saravana Kumar, chief investment officer at Tata AIG Life.

“Also, in a high interest rate scenario, people tend to shift more to non-unit linked products. Hence, the equity investment tends to be lower,” an official added.

ULIPs lose polish for investors insurance companies equity holdings plunge

Equity investments by insurance companies plunged to less than a tenth as policyholders surrendered some unsuccessful old ones to shift to more attractive new products, and regulatory changes took sheen off the unit-linked plans.

LIC missed its annual target of buying shares by a huge margin as policy surrenders jumped more than three-fold during the year. Insurance industry's net investment in equities tumbled to Rs 3,138 crore in the fiscal 2011, from Rs 34,809 crore a year earlier, data from the Securities & Exchange Board of India show.

"Drop in equity investments is because of lower inflows, people are moving towards traditional plans," said Prashant Sharma CIO of Max New York Life. Insurance companies are hit by lower flows into once famous unit-linked insurance plans (Ulips) that had an option to invest a huge corpus into equities unlike traditional insurance plans, where the regulation forced more debt holdings.

Flows into ULIPs fell due to a longer lock-in period that deterred investors and lower incentives made distributors' interest wane. At the beginning of the fiscal year, LIC said it would invest up to Rs 75,000 crore. "Surrenders in the industry is high,'' says Bajaj Allianz chief investment officer Sashi Krishnan. "Policyholders are surrendering from their existing policies or not paying renewal premium as the new set of guidelines is better."

SBI Life's chief investment offer Abhijit Gulanikar said that the increase in surrender has reduced the net investment of the industry in equity. SBI Life had seen policy surrenders of over Rs 1,000 crore. The new guidelines on Ulips that were issued by the Insurance Regulatory and Development Authority (Irda) had capped the surrender charges that one needs to pay while withdrawing from a policy.

The policy had come in force since September 2010. "Insurers are focusing more on single premium and guaranteed products. In these cases, the equity component is not high," said Krishnan. Earlier, there was no cap on surrender charges and companies levied up to 100% at the time of surrender.

The lockin period has been increased to 5 years. Therefore, people are not renewing their existing policies. While all 100% premium can be invested in Ulips, policyholders have the option to choose between the funds and the proportion. In the case of traditional products, with opaque investment plans, the insurance regulator regulates investment norms.

ULIPs to get costlier with boost in service tax

The projected increase in the service tax on life insurance products will make both traditional and unit-linked insurance plans, or Ulips, more expensive. The industry expects the costs to go up by 50-75 basis points (one bps = 0.01%).

Although companies are yet to figure out the crash of the proposed increase, most insurance executives said premiums may go up by as much as 75 basis points.

"Policies are going to get costlier with the increase in service tax. While traditional plans will cost nearly 50 basis points more, Ulips may see a 75 basis points increase," said SB Mathur, secretary general, Life Insurance Council.

The budget for FY12 has proposed a 50(%) per cent increase in service tax for traditional plans - where investments from the premium collected are made as per the regulatory rule. Currently, policyholders of traditional endowment or money back plans need to pay 1(%) per cent of the total premium as service charge.

In Ulips, where the policyholder chooses the investment mix (how much to put in equity or debt), the service tax will be charged on the portion of the premium not allocated for investment, like premium allocation and policy administration charges. At present, the service tax is only on humanity and fund management charges.

"This taxing of the allocation charges and policy administration charges will affect the yield, and we imagine at least 20-25 bps reduction in yield for the policyholder," said G Srinivasan, CFO, Bharti Axa Life Insurance.

A senior executive of a life insurance company said efforts made by the Insurance Regulatory and Development Authority, or Irda, to increase the returns for policyholders by capping the charge will get neutralized to an extent.

Insurers, however, are not clear whether the service tax will be part of the 3(%) per cent cap on the total charges.

Last year, Irda had put a cap on various charges, including surrender and fund management charges. The difference between the gross and the net yield is capped at 3(%) per cent for policies with less than 10 years of maturity; for policies with a maturity of more than 10 years, the difference is capped at 2.25(%) per cent.

P Nandagopal, managing director of IndiaFirst Life Insurance, said there is no clarity on whether the service tax will come under the charges prescribed for Ulips. "In case it is outside the 3(%) per cent cap, the premium will go up for policyholders. If it is within the prescribed cap, insurers will have to control expenses well."

"The increase in service tax will increase the cost of insurance for policyholders," said GV Nageswara Rao, managing director and CEO of IDBI Federal Life Insurance Company.

SBI Saral Maha Anand | Ulip launched

SBI Life Insurance has launched a low-premium Ulip - Saral Maha Anand.

About the Product:
• The minimum annual premium is Rs 15,000 and the maximum yearly premium is capped at Rs 29,000.
• The sum assured component ranges from 10-20 times of the annual premium and is restricted to a maximum of Rs 7.5 lakh.
• SBI Life Maha Anand is meant for investors in the age group of 18-55 years. The maturity age is up to 65 years.
• Like most other Ulips , policyholders can opt for a yearly, half-yearly, quarterly or monthly payments.
• The product offers customers four investment options depending on their risk profiles: Index, Equity, Balanced and Bond fund.
• It also offers partial withdrawal of up to 15% of the fund value after completion of five years. Investors can use this window to meet emergency liquidity needs.

Charges:
• Premium allocation charge is 6.25% of the premium amount for the first year and it goes down to 3.75% between the second and fifth year, and from thereon, further to 3% until the 10th year of the policy.
• The policy administration charges are Rs 33.33 per month.
• The fund management charges are 1.25% for the index fund and balanced fund, 1.35% for the equity fund and 1% for the bond fund.
Financial advisors say that the cost structure of this regular Ulip is still high despite the flexibility of low premium. Hence, if an investor wants to make the most out of this product, s/he has to invest for the maximum possible term and invest a higher amount to earn decent returns.

Pros:
The low premiums could interest those who are unable to afford the huge premiums payouts in most other Ulips.

Cons:
Though it’s a low-premium product, the charges are not significantly lower than those of the company’s other Ulips.

The new and improved ULIPs are here to stay

IT is after a long time that all the insurance companies have started offering unit-linked insurance plans (Ulips) that meet the new guidelines of the Insurance Regulatory and Development Authority (Irda).
All the players, namely –
• Future Generali
• Kotak Life Insurance
• SBI Life Insurance
• Reliance Life Insurance
• HDFC Standard Life
• LIC and soon
Have launched and continue to launch their products in line with the new norms that came into effect.
Irda has cleared 51 of the 68 unit-linked products that were filed with it. Each insurer has to come out with a minimum of two products.

Norms could cap charges on top of ULPs, Irda

The Insurance Regulatory & Development Authority (Irda) is planning to cap the charges on universal life policies, or ULPs. These have almost replaced unit-linked insurance plans (Ulips) in terms of new business. Ulips, which used to account for around 80(%) per cent of the segment, lost their shine after the regulator brought in tough norms from September 1.

“We are planning to cap the charges on ULPs, which are parallel to Ulips and have a component of traditional plans. We have received complaints from different sections of the industry claiming that some companies are selling them as Ulips and overcharging policyholders. We want to plug all loopholes,” said a senior Irda official.

Guidelines on ULPs will be in place by next week, the Irda official added. J Hari Narayan, chairman of Irda, had conveyed last week that every product would be experienced for fairness and robustness and only then would they be permitted on the market.
According to present guidelines, commissions on a single premium are capped at 2(%) per cent. On pension products, they are capped at 7.5(%) per cent, while on any other insurance product they can go up to 40(%) per cent.
After the September 1 changes to Ulips, commissions to agents declined to 7-9(%) per cent from 12-15(%) per cent. The industry expects volumes to pick up, as the new norms improve policyholders’ confidence.
So far, there have been no separate guidelines for ULPs, which are complex, hybrid products. For example, unlike Ulips, there is no unitisation of funds. But other features are similar to Ulips. For instance, after the deduction of mortality charges, the remaining portion of the premium amount is invested in bonds and equities.
ULPs are unique in the sense that policyholders have the flexibility to change the premium, sum assured and the term of the policy during the tenure.
“Irda has not cleared any ULPs in the last 3-4 months. The product is under Irda’s scanner. Agents are pushing them to earn a high commission,” said Sanjiv Pujari, an actuary appointed by SBI Life.
Another executive expects the regulator to come down hard on this product. “There have been complaints about ULPs being sold under the guise of Ulips,” he said.
But there are some who defend ULPs. “There is no need for separate guidelines for universal life. This is not a very difficult product. We don’t disclose the net asset value like Ulips, but the expenses are explained upfront,” said a chief executive officer of a life insurance company.
He added that insurance companies have been selling the products before Ulips were launched in India and have been following the traditional guidelines.
The mutual fund industry, after shifting to a zero-load structure last year, complained that agents and brokers pushed only Ulips because of the high commissions. Soon after, Irda capped the overall charges on these products. To avoid such a situation, the regulator has decided to address the issue proactively.
Also, a committee headed by D Swarup, former chairman of the Pension Fund Regulatory & Development Authority, had recommended shifting to a no-load structure, where a buyer does not pay a commission on any financial product.

Unit-linked insurance plans roll expensive for investors

Unit-linked insurance plans have become just that bit more difficult to access for retail investors.
This follows the recent changes made to the premium configuration of policies launched by some insurance companies. Since September 1, the date when ULIPs were believed to comply with the Insurance Regulatory Development Authority's new norms on such policies, most of the recently launched products offer only an annual premium mode (unlike the monthly payment option earlier) and moreover, the minimum premium payable for such policies now start at Rs 15,000 — an increase of Rs 5,000 from the past.
Even the few insurance companies that offer the ‘monthly premium' option have now raised the minimum commitment to Rs 2,000 — translating into a premium of Rs 24,000 a year. The new ULIPs launched by insurers such as ICICI Pru Life, HDFC Standard Life, Max New York Life, LIC and Kotak set their annual premium in the series of Rs 15,000-20,000, and Canara HSBC OBC Insurance and Birla Sun Life, have a starting premium of Rs 25,000/annum.
The monthly method offered by SBI Life and Birla Sun Life comes at a higher premium of Rs 2,000-2,500 a month, taking the annual premium outgo to Rs 24,000 and Rs 30,000, respectively. One of objectives of the new IRDA regulation was to enhance retail sharing and make ULIPs more transparent and cost-effective.
Insurance companies reason that under the revised norms, they will finds ULIP marketing money-making, only if policyholders continue to pay premium over the policy's 10-year or longer term. Investors are more likely to keep their policies in force if premium are collected on an annual basis, compared with a shorter time-frame.
According to an industry insider, the regulator's insistence that policyholders must not suffer more than 3(%) percentage points as fees out of the gross returns posted by the insurance company, is already a constraint on the latter's ability to defray the customer acquisition cost ( marketing expenses). The additional stipulation that cancellation charges (for premature termination) can not exceed 4(%) per cent of the premium paid, means that initial acquisition costs can be defrayed in full only if the size of the annual premium collected from the policyholders up to that point of time are larger than earlier. Hence, the industry's emphasis on a larger ticket size for the annual premium.
A top official of an insurance company said that the charges an insurer can levy are capped through minimum return criteria laid down by the IRDA. This makes it difficult for the insurance company to attract customer acquisition costs at a lower premium.

Old strategy good for new ULIPs as well

Unit-linked Insurance Plans (Ulips) are back. Insurance companies are busy presentation new versions of the products which had earned a bad name for the whole industry in their earlier avatar due to rampant mis-selling. According to financial experts, the new Ulips, which meet the latest strategy issued by the Insurance Regulatory and Development Authority (Irda), are definitely more transparent and investor-friendly.

For example, the charges are now consistently spread across the tenure of the policy, there is a longer lock-in period and surrender charges are capped. But is the new version a better product now or is it just old wine in a new bottle? “The new guidelines lay great stress on promoting Ulips, primarily as insurance products. The insurance component in the new Ulip will be significantly higher than earlier. Further, higher initial allocation could result in better returns,” says G Murlidhar, chief operating officer, Kotak Life Insurance.

Evenly spread allocation charges, or the insurer’s fee for managing a policyholder’s money, through the policy term will allow the customer to see a gradual build-up of his funds over time, encouraging him to pay premiums regularly and staying invested for the entire period of the policy, he adds.

New Ulip norms starting 1st Sept, policyholders to advantage

Starting Wednesday, policyholders will get a much fairer deal if they invest in unit-linked insurance plans (Ulips).

The new rules of the Insurance Regulatory and Development Authority (Irda) take result from September 1. Ulips, which contributed 80(%) per cent of the total premium collected by private companies, will see an impressive change. Irda has capped the difference between net and gross yields during the policy term. Insurers will have to offer a minimum approved return even if a policyholder withdraws from the fund before maturity. For the 5^th year, the cap is fixed at 4(%) per cent.

WHAT’S IN STORE?
Move: The difference between net and gross yields capped during the policy term.	Effect: The policyholders will get higher returns on their Ulip investments.
Move: The lock-in period will increase from three years to five years.	Effect: If anyone withdraws in the first year, he will get back the amount after deduction of charges only after the 5th year.
Move: Surrender charges have been capped at a level much lower than what exists at present	Effect: It will ensure that only acquisition expenses are recovered in the event of the discontinuance of the policy.

From tomorrow, the lock-in period will increase from 3 years to 5 years. If a policyholder wants to remove in the 1^st year, he will get back the amount invested after deduction of various charges only after the 5^th year.

To ensure only gaining expenses are recovered in the event of the discontinuance of the policy, surrender charges have been capped at a level much lower than what exists at present. The industry had been benefiting from higher lapses. Funds collected from policyholders under lapsed policies are sent to a part fund and the money is given the the policholder after the company deducts all charges. The charges are as high as 100(%) per cent in some companies.

“We have always maintained that insurance is a long-term contract. Any pre-termination of policy is not good for all stakeholders,” said S B Mathur, secretary general, Life Insurance Council.

“Products are going to be more gorgeous now. We expect greater customer interest, as charges will be uniform as well as lower,” said G V Nageswara Rao, managing director and chief executive officer, IDBI Federal Life Insurance.

Rao added the customer could now expect higher returns, as the amount of funds invested was likely to go up.

Along with these changes, the regulator has set minimum disclosure guidelines for insurers.

“Now agents cannot take policyholders for a ride. They (policyholders) can now see the financial position of the company over the website and do not need to depend on agents,” added Mathur.

On the flip side, though overcharging and misspelling will come down, insurers say product innovation and customisation will be affected. Also, traditional plans will suit those in the lower ticket size segment.

Birla Sun Life Insurance rides Ulips to timepiece profit

Increased focus on unit linked life insurance plans has helped Birla Sun Life Insurance Company book net profit for the first point in 10 years for the quarter ended June 2010.

This happens at a time when the unit-linked insurance products (Ulips) face many dogmatic hurdles.

For the April-June quarter, the company posted a net profit of Rs 9 crore beside net loss of Rs 111 crore in equivalent period previous financial years.

“The company is working on reinforcing the Ulip as a long term protection cum savings product,” the company said in its release.

The Bachat (Endowment) plan launched in May this year is garnering positive reply from investors, the release said.

The company has more than 85(%) per cent of the their portfolio in Ulips, while traditional plans amount to a sub-15(%) per cent.

While the new business premium saw 7(%) per cent increase, the renewal premium helped the revenue growth with a 27(%) per cent increase. The new business premium grew to Rs 473 crore and the renewal grew to Rs 669 crore for the financial year ended March 2010.

The company recorded a growth of 18(%) per cent in total premium income at Rs 1,143 crore. Assets under management (AUM) of the company scaled up by 44(%) per cent to Rs 16,841 crore.

The company’s value of new business margin (NBM) grew from 20.3(%) per cent last year to 22.5(%) per cent this financial year. The company made the public admission of its fixed value of Rs 3,816 crore as on March 2010, up 25(%) per cent year on year.

Embedded value is the future value of the present business (in-force policies) of the life insurance company.

Get more information Life Insurance

Changes to ULIPs with the aim of should create you smile

Just under two weeks ago, the ministry of finance had located the ball in the Insurance Regulatory Development Authority’s (IRDA’s) hand, creation IRDA the sole regulator for unit linked insurance plans (ULIPs).

In a circular issued on June 28, 2010, the regulator notified a number of changes to the configuration and framework of ULIPs that are usually helpful to customers, but with some care.

These changes, that will be successful in all ULIP sales from September 1 this year, plan to address the issues that were being highlighted by critics and customers alike. Here we take a look at them
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Life insurers’ premium up 63% among Ulip chain

Despite the controversy nearby the regulation of unit-linked insurance policies (Ulips), new business premium of life insurance companies grew 63(%) per cent to Rs 8,218 crore in May 2010, compared with Rs 5,050 crore in the same month last year.

Public sector insurer Life Insurance Corporation (LIC) registered 82(%) per cent jump in new business premium, growing from Rs 3,241 crore in May 2009 to Rs 5,907 crore in 2010.

Private life insurers saw new premium grow from Rs 1,809 crore in May 2009 to Rs 2,311 crore in 2010, a growth of 28(%) per cent.

The controversy over the regulation of Ulips happening after the Securities and Exchange Board of India (Sebi) in April barred 14 life insurance companies from selling Ulips, calling them investment products and asking insurers to seek approval from it before introduction such products.

Following the controversy, most companies kept the launch of new unit-linked products on hold.

However, now that the government has complete it clear that Ulips will continue to be keeping pace by the Insurance Regulatory and Development Authority (Irda), the industry hopes to launch new Ulips soon.

Among private life insurers, ICICI Prudential collected new premium of Rs 460 crore in May 2010 compared with Rs 346 crore a year ago, a jump of 36(%) per cent.

SBI Life garnered Rs 442 crore new business premiums during the same month, posting a 37(%) per cent increase over last year’s.

Meanwhile, gross premium underwritten by general insurance companies grow 20(%) per cent to Rs 2,994 crore in May 2010 compared with Rs 2,490 crore in the earlier year.

Four nationalized general insurance companies accounted for Rs 1,796 crore of the total gross premiums, while private non-life insurers collected Rs 1,197 crore during the month.

To be taxed Ulips investment products

The Finance Ministry has said the unit-linked insurance products (Ulips) are investment products and are therefore possible to be taxed after performance of the Direct Taxes Code (DTC). "Ulips are basically investment products and wanted to be taxed.

The final sight, however, will be taken at the time of the formulation of the code", the finance ministry sources said here today. At present, no tax is levy on the returns on Ulips, an equity-linked insurance implement, the regulation of which has become a bone of contention between the insurance regulator Irda and market watchdog Sebi.

Ulips are hybrid investment-cum-insurance products and report for over 50(%) per cent of the total insurance business in the country. When contacted, Life Insurance Council secretary General SB Mathur said, "We have maintained that Ulips are not pure investment products.

But calling them pure investment product is not right. We will approach the income department in due course.

“As per the revised DTC, which will replace the 50-year-old Income Tax Act, only six particular instruments will qualify for the EEE (exempt-exempt-exempt) taxation. Under the EEE mode, tax exemption is provided at all the levels of the instrument-- at the time of investment, at accumulation and at the time of withdrawal.

The DTC is expected to be ready from next April. The six instruments which will qualify for exemption are government provident fund, public provident fund, recognized provident fund, pension funds regulated by Pension Fund Regulatory and Development Authority (PFRDA), pure life insurance products and annuity plan.

As Ulips are investment products, the Finance Ministry official said, it could not be classify as pure life insurance product. The insurance watchdog Irda is locked in a turf war with Sebi over regulation of Ulips.

The difficulty came to the fore after Irda advised 14 life insurance companies to ignore the April 9 Sebi''s order banning Ulip schemes. The row impelled the Finance Ministry to interfere in the matter and mediate an agreement under which both the regulators agreed to seek a legally compulsory order on Ulip jurisdiction.

Following this, Sebi moved the Supreme Court to transfer all cases pertaining to the Ulip issue to the apex court following which notices were sent to the Centre, Irda and 14 insurers. The top court will hear the matter on July 8.

ULIPs may misplace flavour without spice of tax advantage

Unit-linked insurance policies (ULIPs), which constitute the bulk of the business for insurance companies, may end to be a popular investment product if the revised conversation paper on the Direct Taxes Code (DTC) is implemented in its present form.
This is because the revised conversation paper has recommended that only approved pure life insurance products and annuity schemes are subject to EEE (Exempt Exempt Exempt) technique of tax treatment.
“Approved pure life insurance products and annuity schemes will also be topic to EEE method of tax treatment”, the revised paper said.
This implies that the final pay-out from unit-linked plans could be taxed, said officials from the insurance industry.
The DTC had proposed tax deduction on the final pay-out of insurance policies, while exempting the policy premium at the time of role and the interest on it. Life insurance companies had asked that the present system of tax exemption for maturity proceeds be continued. They had made a representation to the Government that the EEE method of addition should continue as against the Exempt Exempt Tax (EET) method proposed.
It seems that while the government has decided on exempting term and whole life policies, it has decided to keep unit-inked products under the EET category.
Insurers fear that this move will spoil ULIP sales. ULIPs comprise almost 80-90(%) per cent of the private life insurers' business and around 65(%) per cent for Life Insurance Corporation of India.
“It is a relief that at least death claim benefits have now been exempted from tax. But it seems that ULIPs have been retained under the EET rule. We will have to go back to the government again with our representation”, said Mr Kamalji Sahay, Chief Executive Officer, Star Union Dai-ichi Life Insurance Company.
The Life Insurance Council is expected to make a representation to the Government for counting ULIPs under the EEE category.
Insurers are also happy that annuities, which were taxed under the existing system, have been exempt from tax.
Currently, up to one-third of the maturity amount when withdrawn is treated as tax-free. However, the remaining two-third amount was taxed as per the individual's tax slab.

ULIP row will be resolved shortly: FM

Finance minister Pranab Mukherjee on Tuesday said the row between insurance regulator IRDA and stock market regulator Sebi about unit-linked insurance products (ULIPs) will be resolve very shortly.

Mukherjee added that even as the life insurance industry has made some development to arrive at out to semi-urban and rural areas, ''the general insurance still requirements to work harder.''

On ULIP, FM said he was alert of the recent issues in the life insurance industry, particularly these products.

He said. ''We will resolve this subject soon. I understand the IRDA has taken some very positive steps in respect of regulations of ULIPs which are in the importance of both the insurance industry as also the policyholders,''

SC listen to ULIP case in July; may not fix on jurisdiction problem

The Supreme Court will hear the case pertaining to the line over manage of ULIPs between market regulator SEBI and insurance regulator IRDA next month but may not choose on the controversy over who would regulate these market-linked insurance products.

"The Supreme Court is in vacation. The transfer appeal is likely to be taken up in July," IRDA chairman J Hari Narayan told PTI today when asked about the growth on resolving its dispute with SEBI over controlling unit-linked insurance products (ULIPs).

Significantly, the IRDA chief is not sure whether the apex court will decide on the issue of control of ULIPs as it is not directly raised in the transfer appeal filed by SEBI before the apex court.

"The issue of jurisdiction is not directly mentioned in the petitions. It is only indirectly mentioned," said Narayan, who was in the Capital and met finance secretary Ashok Chawla.

Earlier, SEBI had filed a petition in the Supreme Court in quest of transferring all the ULIP-related cases from various high courts to the apex court. In this regard, the apex court had issued notices to the Centre, IRDA and 14 life insurers.

SEBI and IRDA have been locking horns over who has the power to control ULIPs, which are equity and bond-linked insurance products. The dispute snowballed into a major controversy after SEBI on April 9 banned 14 life insurers, as well as those belonging to SBI Life and Reliance Life of the Anil Ambani Group, from raising any fresh money from ULIPs unless they are registered with the market watchdog.

Responding to the SEBI directive, IRDA asked insurance companies to ignore the order of the market regulator and continue with business as usual.

Amid conflicting orders, the finance ministry brokered peace between the two regulators and asked them to equally seek a legally binding order from an appropriate court. It also asked the regulators to maintain status quo till a binging judicial order is secured.

Following the government directive of status quo, SEBI allowed insurers to raise money from existing ULIPs, but prevented them from issuing fresh ULIPs after April 9.

On jointly seeking a legally compulsory mandate with SEBI, Narayan said, "we are all for it, but the SEBI counsel told them that it is not a civil matter, civil procedure does not apply."

According to sources, IRDA wanted a joint application under Section 90 of the civil procedure code, but SEBI did not agree. Under Section 90 if any person agrees in writing to state a case for the opinion of the court, then the court shall try and determine the same in the manner agreed.

Aegon Religare appetite for increase

Aegon Religare Life Insurance Company is targeting a three-fold increase in premium income from latest businesses in 2010-11 from Rs 166 crore previous years and is planning to use Rs 450-470 crore on growth.
“We are targeting a premium income of Rs 500 crore from new businesses in the current fiscal year,” said Rajiv Jamkhedkar, managing director and chief executive officer of Aegon Religare Life Insurance.
The company, which started operations in middle-2008, hopes to break even in 8 years that is by 2016-17.
According to Jamkhedkar, expansion will be affected if the dispute between the Securities and Exchange Board of India (Sebi) and the Insurance Regulatory and Development Authority (Irda) over Ulips is not determined soon.
The debate over Ulips started last month when Sebi banned 14 private insurers from advertising these insurance plans launched after April 9 without obtaining a certificate of registration from it.
The market regulator, however, allowed them to sell Ulips launched before April 9 till extra notice.
The insurance regulator made things more difficult for life insurers after it barred them from selling Ulips with a lock-in of less than 5 years and put a cap on the surrender charges.
Life insurers will have to change a few terms and conditions of their existing Ulips to sell them to new customers from July 1.

Ulip string can hit business: Religare

Private insurance player Aegon Religare Life Insurance at present said if the turf war between the capital markets regulator Sebi and insurance regulator Irda over Ulips is not resolved at the first it will impact the industry.
"If the issue is not resolved in the next couple of months then it will crash the business," Aegon Religare managing director and chief executive Rajiv Jamkhedkar said, adding however, so far there is no impact on the unit-linked insurance products (Ulips) business and the companies do not have any need for new Ulips now.
On April 9, Sebi had banned 14 life insurance companies, as well as Aegon Religare, from raising funds through Ulips, which invest the premium money in equity and debt markets. But Irda asked insurance companies to overlook the ban and do business as usual as Ulips are an insurance issue and not that of securities market. Sebi reacted to this with a fresh order banning new Ulips.
This forced the finance ministry to interfere which asked the regulators to seek a legally compulsory opinion on the matter, following which the regulators moved the Supreme Court, which will hear the case in July.
Ulips constitute more than half of the total business of the life insurance industry. At the end of the last fiscal, Ulips comprised around 75(%) per cent of the total business of Aegon Religare which can be reduced to 65(%) per cent by the end of this financial as there will be increase in traditional products.
Jamkhedkar said the company will infuse up to Rs 470 crore to build up its branch network and hire over 15,000 in the current financial including 13,000 agents to support its expansion plans.

Irda hits reverse at Sebi on Ulips

The Insurance Regulatory and Development Authority (Irda) has said the Securities and Exchange Board of India’s (Sebi) take in to insurance companies on unit-linked insurance plans (Ulips) sold by them was “misconceived on abstract, legal and structural grounds”.
Irda’s letter to the market regulator comes after the latter’s show cause notice to insurance companies last month, asking why they had not taken Sebi’s approval to sell Ulips.
In a letter to Sebi Chairman C B Bhave last week, Irda’s Deputy Director (Life) Sudipta Bhattachaya pointed out that the regulatory set up in India, which had legal backing, was clearly demarcated.
In its letter, the insurance regulator said the road map for regulation of Ulips by Irda was “well laid down, and settled,” and there was “no merit” in the conflict that insurers must obtain a certificate of registration from the Sebi for selling these products.
Following the Sebi show cause notice on January 15, life insurers had approached Irda. “While there is a factor of market exposure, the insurance component is much higher. The rules are reasonably clear and investor interest is clearly protected,” said the CEO of one of the largest Life Insurance Companies. For some private players, Ulips account for close to 90 per cent of new business.
Application of mutual fund rules to Ulips would mean that companies will not be able to pass on the commission to customers, since entry loads have been banned for mutual funds. In addition, the investment and accounting rules are different for Ulips and mutual funds.
Sources close to the development said Irda’s letter has pointed out the legal requirements that limited Sebi’s jurisdiction to securities and securities related transaction.” What constitutes a security has been defined in the Securities Contract (Regulations) Act, 1956 and insurance contracts are not regulated under these securities laws,” it said.
Further, Irda said that structurally, Ulips are distinct from mutual funds and pointed out that the minimum capital requirement for an insurance company was Rs 100 crore and also maintain around 3 per cent as solvency capital. In contrast, an asset management company “is required to manage thousands of crores of assets with just Rs 10 crore”.
“Certain similarities in the features of various products issued in the financial world would not necessarily imply regulatory overlap,” Irda added.
Asked to comment, a senior Sebi official said: “ULIPs are mix investment products with Insurance cover and since it involves management of funds, Sebi has a role in protecting the interests of investors... Ulips are fit for regulation under Sebi’s mutual fund regulations.”