India Market Life Insurance Update · Copyright © 2015 Towers Watson. All rights reserved....
Transcript of India Market Life Insurance Update · Copyright © 2015 Towers Watson. All rights reserved....
Copyright © 2015 Towers Watson. All rights reserved. towerswatson.com 1
Introduction We are pleased to release our 61st quarterly newsletter on the life
insurance industry in India, covering developments during
September to November 2015.
As per data released by the Insurance Regulatory and
Development Authority of India (IRDAI), the life insurance
industry collected weighted new business premium of INR236
billion over the first two quarters of FY2015-16, a year-on-year
growth of 3.3%. While the private life insurance sector witnessed
a double digit growth of 20.2% in its weighted new business
premium collections, the overall industry growth was pulled down
by a fall of 8.9% witnessed by the state-owned Life Insurance
Corporation of India (LIC) in the same period. Single premium
sales rose for both private players and LIC which were driven by
the group single premium segment recording a growth of 59.6%
and 42.9%, respectively.
Many foreign partners in life insurance joint ventures in India are
at varying stages of increasing their respective stakes. Bharti
AXA Life is the first insurer to have received the regulator’s
approval for increasing AXA’s stake from 26% to 49% in the joint
venture.
Following the Insurance Laws (Amendment) Act 2015, the
insurance regulator has issued a number of new regulations,
exposure drafts and guidelines. Publication of recommendations
of the committee that examined extant life insurance regulations
and subsequent release of exposure draft by the IRDAI on
Assets, Liability and Solvency Margin (ALSM) of life insurance
business and guidelines on ‘Indian Owned and Controlled’ are
some of the significant ones.
In the reporting period, two-fifths of new product launches were
unit-linked products, which are in demand due to good returns in
unit-linked funds.
We provide an overview on these and other market
developments in this edition of the newsletter. We hope you
continue to find the newsletter interesting and informative and
look forward to receiving your feedback.
Towers Watson – Risk Consulting & Software, India
In this issue Industry statistics Industry new business performance
Financial assets of household sector in India
Market update Stake transfer to foreign players
Company news
Q2 Financial results FY2015-16
Embedded Value (EV) disclosures by private life insurers
Appointments and key role changes
Update on social security schemes
Regulatory update IRDAI (ALSM of Life Insurance Business)
Regulations, 2015
IRDAI (Other Forms of Capital) Regulations, 2015
IRDAI (Minimum Limits for Annuities and other Benefits) Regulations, 2015
The Insurance Laws (Amendment) Act 2015 - Guidelines on Indian Owned and Controlled
Guidelines on remuneration of Chief Executive Officer (CEO)/ Whole-time Director (WTD)/ Managing Director (MD) of Insurers
Anti-Money Laundering (AML)/Counter-financing of Terrorism (CFT) Guidelines
IRDAI (Issuance of Capital by Indian Insurance Companies transacting Life Insurance Business) Regulations, 2015
IRDAI (Registration of Corporate Agents) Regulations, 2015
IRDAI (Preparation of Financial Statements and Auditors’ Report of Insurers) Regulations, 2015
IRDAI (Obligations of Insurers to Rural and Social Sectors) Regulations, 2015
Others
Distribution update Growth in new business premium income by
channel during April to September 2015: New business momentum driven by bank-led distribution models
Products update Recent product launches
Contact details
India | Issue 61 | December 2015
India Market Life Insurance Update
Copyright © 2015 Towers Watson. All rights reserved. towerswatson.com 2
Industry statistics “Private insurers continued to witness growth in new business, registering a year-on-year growth of 20.2%
in weighted new business premium collections in the period April to September 2015. At the same time, the
LIC recorded a decline of 8.9% in weighted new business premium collections, resulting in an overall
industry growth of 3.3%. Whilst LIC witnessed a decline in weighted new business premiums, it
demonstrated a growth of 9.3% in total new business premium collections owing to its sales weighted
heavily towards single premium business.”
Industry new business performance
Source: IRDAI
As per statistics released by the IRDAI, life insurance industry in
India collected weighted new business premiums of INR236
billion in the first half of FY2015-16, representing a modest
growth of 3.3% over the same period in FY2014-15. Weighted
new business premiums are calculated as 100% of regular
premium and 10% of single premium.
State-owned LIC witnessed a fall of 8.9% in its weighted new
business premium collections leading to a decrease in market
share from 58.3% to 51.4%. LIC’s weighted individual and
group business declined by 11.1% and 3.2%, respectively.
Private insurers have, however, continued with their buoyant
performance over the first half of FY2015-16 recording a growth
of 20.2%, increasing their market share to 48.6%.
Both private players as well as LIC have increased focused on
group single premium sales, evident by a strong year on year
growth of 59.6% for private players and 42.9% for LIC during
the half year.
ICICI Prudential Life further strengthened its position as the
market leader amongst private insurers, with a rise in its market
share from 7.8% to 9.5%, year-on-year, owing to a strong
growth of 24.7% in weighted new business collections. Except
for Reliance Life and Bajaj Allianz Life, all of the top 10
private insurers have recorded a positive growth in their
weighted new business premium collections.
SBI Life has registered a substantial growth of 59.9% in its
weighted new business premium collections. Kotak Life, Star
Union Dai-ichi Life, Tata AIA Life, Shriram Life and Future
Generali Life have also witnessed significant surge in their
weighted new business collections in excess of 80% over the
previous year. Shriram Life has reportedly attributed its growth
to focus on distribution through micro-finance institutions.
As the sector shows signs of recovery and stability, industry
experts and analysts expect the growth momentum to continue
over the long term. Credit Suisse has forecast that the industry
shall remain relatively flat over the short term as the industry
stabilises, however it remains poised to grow by 14.6% per
annum over the next 10 year period. A marginal decline over
the short term horizon is expected due to relatively unstable
regulatory regime. Press statements suggest general growth
expectations in the industry for FY2015-16 as LIC and HDFC
Life have stated expected business growth of 10-20%, while
Kotak Life is targeting growth in excess of 20%. Insurers with
a smaller base such as Edelweiss Tokio Life and DHFL
Pramerica Life have stated targets of up to 40-50%.
0 5 10 15 20 25
Others
Star Union Dai-ichi Life
PNB MetLife
Bajaj Allianz Life
Kotak Life
Max Life
Reliance Life
Birla Sun Life
HDFC Life
SBI Life
ICICI Prudential Life
Weighted new business premium collections of private life insurers (in INR billion)
April to September 2014 April to September 2015
41.7%
48.6%
Comparison of relative market shares of private life insurers in April to September 2015 and
April to September 2014
0 40 80 120 160
Total private players
LIC
Weighted new business premium collections in April to September 2015 and April to
September 2014(in Rs billion)
April to September 2014 April to September 2015
Q2 FY2015-16
Q2 FY2014-15
+20.2% YoY growth
-8.9% YoY decline
Copyright © 2015 Towers Watson. All rights reserved. towerswatson.com 3
Financial assets of the household sector in India
“Life Insurance, as a part of the total household savings in India, has stabilised after facing a decline in 2010
owing to regulatory reforms. A comparison with similar statistics for select developed countries, like the
USA, the UK and France, indicate similar proportions of household savings invested in insurance.”
The following chart represents trend in the proportion and growth of life insurance savings as part of the household sector financial
assets in India. The analysis spans over the past 15 years since the privatisation of insurance sector in India. The trend line chart
represents the year on year growth in life insurance savings; and the column graph represents life insurance as part of the total
household financial assets.
Source: RBI statistics
Life insurance accounts for 19.0% of the total household
financial assets in India of INR12,356 billion for FY2014-15. The
Banking sector holds the largest share of these assets with
46.9%, while pension funds contribute 16.3%. The proportion of
life insurance peaked in FY2009-10 with 26%, as a result of
rapid growth in preceding years and better penetration with
opening up of the sector to private insurers, followed by a
relative decline in the following years. Similarly, year-on-year
growth in life insurance savings reached a peak in FY2009-10
followed by a sharp decline and a rise again in the past few
years. During the period of global economic crisis after FY2007-
08, life insurance witnessed a rise in its share from 15.0% in
2006-07 to 22.0% in FY2007-08, while savings in banking sector
dipped from 56.1% to 50.4%.
The following graphs show a comparison of life insurance and pension funds, as a component of household financial assets of
India with developed economies like the USA, the UK and France. Growth is calculated as compounded annual growth rate
(CAGR).
Source: Global Investment Research Report, Goldman Sachs Notes: 2004 has been used as the base year for 2006; latest available data for the USA is as of 2013. *Years on the x-axis represent calendar years, except for India where year represents financial year (where for example, 2013 represents FY2013-14).
The graphs indicate that the USA, France and India currently
exhibit a similar proportion of insurance (life insurance and
pension fund investments) out of the total household financial
assets, i.e. around 35%-40%, while the UK holds a relatively
higher proportion of insurance with 61.3%. Analysis of growth in
insurance savings indicates that France, the USA and India
have followed a similar trend over the period considered, with
India showing more volatility compared to others. It is
noteworthy that even though the proportion of household
financial assets invested in insurance funds is similar in India to
these countries, the overall insurance penetration remains low in
India.
14% 14% 16% 13% 15% 14%15%
22%21%
26% 19%21% 18%
16% 19%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
FY00-01 FY01-02 FY02-03 FY03-04 FY04-05 FY05-06 FY06-07 FY07-08 FY08-09 FY09-10 FY10-11 FY11-12 FY12-13 FY13-14 FY14-15
Ye
ar
on
ye
ar
gro
wth
Ho
use
ho
ld s
ecto
r fin
an
cia
l asse
ts(in
IN
R b
illio
n)
Household sector - financial assets
Life insurance Others Life insurance - YoY growth
-10%
-5%
0%
5%
10%
15%
20%
25%
2006 2008 2010 2012 2013
Growth in life insurance and pensions
France UK USA India*
61.3%
38.5%35.2% 34.2%
0%
10%
20%
30%
40%
50%
60%
70%
UK France India USA
Proportion of life insurance and pensions in household financial assets in 2014
Copyright © 2014 Towers Watson. All rights reserved. towerswatson.com 4
Source: Towers Watson analysis of company disclosures and press releases
Notes: 1. As reported in the media or calculated as implied valuation divided by most recent available EV disclosure 2. Outstanding # shares is the total number of shares of the insurance company from 30 September 2015 public disclosures
Market update “Following increase in the FDI limit in the Indian insurance sector to 49%, many foreign insurers have come
further along in the process of increasing their stake in their existing joint ventures. However, the
requirement of fulfilment of the recently released ‘management control’ guidelines and negotiations between
partners to reach a mutually agreeable valuation has delayed the process for some insurers.”
Stake transfers to foreign partners
After nearly eight months since the passage of the Insurance
Laws (Amendment) Act, which raised the FDI limit in the
insurance sector to 49%, only one foreign insurer has so far
received regulatory approval for a stake hike in its life
insurance joint venture. Meanwhile, most life insurers have
expressed public interest in increasing their respective foreign
partners’ share in the joint venture and are at varying stages of
this process. The completion of the stake transfer for some of
these life insurers has been held up due to clarity sought
regarding management control from the regulator.
Bharti AXA Life, which was previously asked by the IRDAI to
rework its shareholding pattern in accordance with the
clarification on management control guidelines released by the
regulator, has now received the regulator’s nod and has
announced that AXA shall increase its stake from 26% to 49%
in the joint venture. HDFC Life has applied to the Foreign
Investment Promotion Board (FIPB) for approval for Standard
Life’s stake hike to 35% in the joint venture and is also working
to meet the regulatory guidelines. The details of this
transaction were covered in our India Market Life Insurance
Update, Edition 60. Following this transaction, the HDFC Life
has indicated intentions of launching an Initial Public Offering
(IPO) by mid-2016.
Aegon Life has obtained approval from the FIPB to increase
the stake of Aegon to 49% in the joint venture. This proposal
had previously been deferred by the FIPB. Aviva Life has
obtained approval from Competition Commission of India
(CCI) to increase the stake of its foreign partner Aviva
from 26% to 49%.
Media reports suggest that Nippon Life is in an advanced
stage of discussions to raise its stake from 26% to 49% in
Reliance Life. The deal is subject to regulatory approvals and
is expected to be completed within the current financial year.
The joint venture will be subsequently renamed to Reliance
Nippon Life Insurance. Sun Life Financial has stated that it
will increase its stake from 26% to 49% in its joint venture -
Birla Sun Life. The transaction is expected to close by the
end of the current financial year. SBI Life has also begun the
process to increase the stake of BNP Paribas from 26% to
36% and the joint venture partners expect to reach an
agreement on the valuation of SBI Life over the next couple of
months. Star Union Dai-ichi Life and DHFL Pramerica Life
are amongst the other insurers who have reportedly made
progress in their joint venture negotiations and are close to
increasing the shareholding of their respective foreign
partners- Dai-ichi Life and Prudential Financial Inc. to 44% and
49%, respectively. In addition to this, Max India is reportedly
in talks with four private equity firms for sale of a 22% stake in
Max Life such that the combined stake held by the private
equity investors and the existing foreign partner Mitsui
Sumitomo in the joint venture would increase to nearly 49%.
The chart presented below summarises the current state-of-
play for various life insurers in their respective stake transfer
process at the time of releasing this newsletter, based on
information available in the public domain. Key transaction
figures, where available have also been included.
Copyright © 2014 Towers Watson. All rights reserved. towerswatson.com 5
Company news
Aegon Religare Life Insurance has been renamed to Aegon
Life Insurance after the exit of Religare Enterprises from the
joint venture. Religare Enterprises exited the life insurance
company by selling its 44 per cent stake to partner Bennett,
Coleman and Company Ltd (BCCL) for INR9.7 billion.
ICICI Bank has reportedly agreed to sell a 6% stake in ICICI
Prudential Life in two separate deals. 4% stake will be sold
to Premji Invest, an investment company of Azim Premji, and
2% stake will be sold to Compassvale Investments Pte Ltd, an
arm of Singapore government-owned Temasek Holdings.
This will reduce the shareholding of ICICI Bank in the joint
venture to approximately 68% while the foreign partner
Prudential Inc will maintain its stake of 26%. The reported
total transaction value of the two deals is INR20 billion, which
put the valuation of the company at INR325 billion with an
implied EV multiple of 2.4x.
India First Life has received a capital infusion of INR1.5
billion from its three promoters – Bank of Baroda, Andhra
Bank and Legal & General, in line with their existing
shareholding pattern of 44%, 30% and 26%, respectively.
Hence, the total share capital of the firm has risen to INR6.25
billion. The additional capital would be primarily used for
technology and new business growth.
The IRDAI has reportedly granted permission to the UK-based
reinsurer Lloyd’s to set up its branch office in India. The
modalities of approval were announced as an exposure draft
by the IRDAI which would also serve as a basis for other
applicants in future.
Following key regulatory reforms, various life insurance
companies are looking to reorient their strategic direction and
are investing in devising better customer value proposition,
better risk management processes and technology adoption to
reduce cost. In particular, the firms are looking to expand their
growth with the help of digitisation, data analytics, and other
technological advancements. As per press reports, the Indian
insurance industry is expected to spend INR141 billion on IT
services and products in 2016, a 9.6% increase over 2015.
Credit Information company Experian India, whose presence
until now had primarily been within the banking industry, has
been selected by Indian life insurance companies to build a
data repository and fraud monitoring framework. It will collect
data from all life insurers and conduct micro segment scrutiny
of location segments and demographics where fraud instances
are high.
Q2 Financial results FY2015-16
19 private players have made their financial results available*
at the end of Q2 FY2015-16. Twelve amongst these have
reported a profit over the first six months of the current
financial year. Out of these, only 4 have witnessed a positive
year-on-year growth in their profit after tax compared to the
end of Q2 FY2014-15. These are Bajaj Allianz Life, DHFL
Pramerica Life, Kotak Life and ICICI Prudential Life. Bajaj
Allianz Life is the only insurer to have observed a growth of
more than 100% in its profit after tax from INR2,179 million
from the corresponding period last year.
ICICI Prudential Life has reported the highest absolute profits
of INR8,118 million in the period under study, followed by
Bajaj Allianz Life with a net profit of INR4,566 million.
On the other hand, Aegon Life has witnessed a year-on-year
increase in its losses from INR268 million to INR539 million.
Other insurers who have witnessed a year-on-year increase in
their losses include Edelweiss Tokio and Star Union Dai-ichi
Life.
India First Life, which reported its maiden profit in FY2014-15
followed by losses in Q1 FY2015-16 has continued to report a
loss of INR102 million at the end of Q2 FY2015-16.
The total profit after tax for private insurers has fallen by 9%
from INR26,709 million over the first six months of FY2014-15
to INR24,296 million in the corresponding period of FY2015-
16.
ICICI Prudential Life and Max Life have declared interim
dividends of INR3,007 million and INR1,823 million
respectively for the half of FY2015-16.
Source: Towers Watson analysis using public disclosures data.
*Figures for Aviva Life, Sahara Life, Bharti AXA Life and Canara HSBC OBC
Life are not available as at September 2015
Copyright © 2014 Towers Watson. All rights reserved. towerswatson.com 6
Embedded Value (EV) disclosures by private life insurers
Although only a limited number of life insurers currently disclose their EV, there has been a gradual increase in the number of
companies disclosing EV as well as the frequency of disclosures, thus signalling greater acceptability. Life insurance companies in
India who have disclosed their EV as at the end of FY2014-15 include Bajaj Allianz Life, Birla Sun Life and ICICI Prudential Life
while others who have provided their EV as at 30 September 2015 include Exide Life, HDFC Life and Max Life. The most recent
information available for these life insurance companies, is summarised below:
Exide Life HDFC Life Max Life Bajaj Allianz Birla Sun Life ICICI Prudential
Reported as at 30 September 30 September 30 September 31 March 31 March 31 March
Reported EV
INR 16.58 billion
INR 95.5 billion
INR 53.63 billion
INR 93.02 billion
INR 32.6 billion
INR 137.21 billion
Capital*
INR 17.50 billion
INR 21.60 billion
INR 19.87 billion
INR 12.11 billion
INR 21.01 billion
INR 48.16 billion
EV / Capital ratio 0.9 4.4 2.7 7.7 1.6 2.8
Reported new business margin
(pre expense-overruns)
not disclosed 22.5% 20.2% 18.1% 14.1% 13.6%
Methodology used
~ MCEV ~ MCEV ~ MCEV ~ IEV not disclosed ~ IEV
Source: Towers Watson analysis of company disclosures and press releases
Notes: *Capital presented above includes paid up share capital and share premium account as per Company disclosures
Copyright © 2015 Towers Watson. All rights reserved. towerswatson.com 7
Appointments and key role changes
Aviva Life has appointed Anjali Malhotra as Chief Customer,
Marketing and Digital Officer.
Jyoti Vaswani has succeeded Nirarkar Pradhan as the Chief
Investment Officer (CIO) of Future Generali Life. She was
previously working with Aviva Life as CIO and Director - Fund
Management. Dana Yussupova has been appointed as
Senior Vice President – Internal Audit at Future Generali Life.
Rushabh Gandhi has replaced Mohit Rochlani as the Chief
Marketing Officer (CMO) of India First Life. Karni Arha, Chief
Financial Officer (CFO) and Ranjan Dhawan, Chairman -
Board of Directors have resigned from their roles at the
company.
Bharat Kannan has been appointed as the Chief Distribution
Officer of PNB MetLife for Asia. He had joined the company
in 2005 as the head of Employee Benefits for Asia.
R Radhakrishnan has been appointed as the CMO of Shriram
Life. He is succeeding Narendra Kulkarni.
Yuichiro Abe has taken the role of Chief Risk Officer (CRO) at
Star Union Dai-ichi Life. Akira Yamashita, who was earlier
managing this role, has now been appointed as the Head -
Financial Planning and Budget Control at the same company.
Adit Trivedi has been appointed as the CRO of Tata AIA Life.
Update on social security schemes
The three social security schemes - Pradhan Mantri Jeevan
Jyoti Beema Yojana (PMJJBY), Atal Pension Yojana and
Pradhan Mantri Suraksha Bima Yojana (PMSBY) launched by
the Prime Minister in May 2015 have continued to witness
large number of enrolments. As at the end of November, total
enrolments for these schemes were in excess of 121 million
with enrolments in PMJJBY at over 28 million and PMSBY at
over 91 million. State Bank of India and Punjab National Bank
have continued to lead banks with maximum enrolments of
over 21 million and 8 million members, respectively.
As per a circular issued by the Ministry of Finance, the last
date for enrolling under PMJJBY and PMSBY, without self-
certificate of good health for PMJJBY, has been further
extended until 30 November 2015. Persons enrolling in
PMJJBY after this date will be required to submit prescribed
self-certification of good health while those enrolling in PMSBY
are not required to do so.
The National Insurance Company has reportedly tied up with
the Department of Posts for marketing of policies under the
PMSBY. In addition to this, Boxing India (BI) has reportedly
decided to facilitate PMJJBY for medal-winning women boxers
from this year.
Shriram Life has reportedly tied up with SEWA bank to offer
PMJJBY to the rural population in Gujarat. The total number
of policies sold by the insurer as at the end of November was
over 5,000.
Reportedly, the IRDAI has approved the Life Insurance
Council’s appeal to offer 50% rebate on reinsurance rate on
PMJJBY in an effort to help minimise potential losses to life
insurers from these low premium schemes. In addition to this,
the Life Insurance Council has made an appeal to several
state governments to waive the stamp duty of INR40 for
selling this product. As per the official website for these
schemes, the total number of claims reported until the end of
November were in excess of 7,800 for PMJJBY and 1,540 for
PMSBY.
Copyright © 2015 Towers Watson. All rights reserved. towerswatson.com 8
Regulatory update
“Pursuant to the Insurance Laws (Amendment) Act 2015, the regulator has issued a number of new
regulations, exposure drafts and guidelines. The most significant developments during the quarter have been
the publication of recommendations of the committee that examined extant life insurance regulations and
subsequent release of exposure draft by the IRDAI on ALSM of life insurance business. Additionally, the
IRDAI has mandated all insurance companies to comply with the requirement of ‘Indian Owned and
Controlled’ by January 2016.”
IRDAI (ALSM of Life Insurance Business)
Regulations, 2015
A committee formed by the IRDAI to examine existing life
insurance regulations, with a focus on actuarial aspects has
submitted a detailed report on its findings and
recommendations. The committee recognised the need to
align regulatory framework to the International Association of
International Supervisors (IAIS) Core Principles. Furthermore,
it recommended adoption of a Risk Based Capital (RBC)
framework of solvency assessment with a smooth transition
over a period of few years during which a concurrent
framework could be in place.
Upon further consultation of the Insurance Advisory
Committee, the IRDAI has released an exposure draft on
valuation of assets, liabilities and solvency margin of life
insurance business. While most amendments are in line with
the recommendations of the committee on review of life
insurance regulations, the IRDAI has been silent on the
transition towards a RBC framework. Key highlights include:
The regulations have introduced the requirement to
maintain “Available Solvency Margin” at a level, which is
not less than 50% of the amount of minimum capital and
100% of required solvency margin, whichever is higher.
Introduction of “Control level of Solvency”, i.e. the
minimum solvency ratio on the breach of which the
Authority shall take action. Such a breach would be
where the solvency ratio falls below 150%.
The regulations allows an insurer to raise money through
preference shares, debentures and other subordinated
debt, subject to a cap of 25% of the total paid up equity
capital.
Amongst other inadmissible assets, value of leasehold
improvements and service tax unutilised credit to be
considered inadmissible. The specific requirement of
depreciation of computer hardware and software has
been excluded, instead the value of computer equipment
stated in the financial statements should be used for the
calculation of solvency margin.
Regulation stipulates the calculation of reserves for one
year renewable group term assurances including riders
attached to group business should allow for unexpired
risk, premium deficiency and incurred but not reported
claims. Furthermore, reserves for riders attached to
individual products should be higher of gross premium
valuation reserve and unexpired premium reserve. The
regulations have further detailed the valuation
methodology of variable insurance products.
If valuation basis allows for the lapse decrement, then it
should be based on past experience of the product or
similar products, allowing for the expected future
experience based on the nature of the products, target
market and distribution channel.
The mathematical reserves shall be the highest of
reserve computed under Gross Premium Valuation
method, Guaranteed Surrender Value and Special
Surrender Value. This best practice has been followed
by most of the Companies currently, it has now been
formalised in this regulation.
Requirement of additional reserves to be held for
expenses if the valuation assumptions for expenses do
not reflect the current expense experience of the insurer.
The IRDAI has further released an exposure draft with
guidelines on the procedure for preparation of Actuarial Report
and Abstract (ARA). The statement of assets (Form AA) has
been moved to ARA from the ALSM regulations. It also states
that the statements should be prepared separately for
participating and non-participating business.
IRDAI (Other Forms of Capital) Regulations,
2015
Our India Market Life Insurance Update, Edition 60 covered
the exposure draft on other forms of capital. The draft
guidelines have now been issued as regulations and amongst
other minor updates, the minimum redemption period of
preference shares and debentures has reduced to 10 years
from previously stipulated 15 years as per the exposure draft.
Copyright © 2015 Towers Watson. All rights reserved. towerswatson.com 9
IRDAI (Minimum Limits for Annuities and other
Benefits) Regulations, 2015
The regulator has issued minimum limits for annuities and
other benefits secured by policies offered by life insurers,
where benefits are not less than:
Annuity of INR1,000 per month,
Gross sum of INR1,000 for micro-insurance and health
insurance business,
Gross sum of INR5,000 for other life insurance policies.
However, the IRDAI may approve lower annuities and other
benefits in extraordinary circumstances.
The Insurance Laws (Amendment) Act 2015 -
Guidelines on Indian Owned and Controlled
While the passage of Insurance Laws (Amendment) Act 2015
allowed increase in FDI limit in the Indian insurance sector to
49%, it also provided for a stipulation that insurance
companies be “Indian owned and controlled”. Our India
Market Life Insurance Update, Edition 59, covered the
clarifications issued by Ministry of Finance in this regard. The
IRDAI has subsequently released guidelines providing further
clarity. Key tenets of the guidelines include:
Control can be exercised by virtue of shareholding or
management rights or shareholder agreements or voting
agreements.
Indian promoter shall nominate majority of the directors,
excluding independent directors. The Chairman of the
Board with a casting vote shall also be nominated by the
Indian promoter.
The Board shall appoint key management person
including the CEO.
Control over significant policies of the insurance
company should be exercised by the Board.
Quorum (i.e. minimum number of members necessary to
conduct the business of a group), should include
presence of a majority of Indian directors irrespective of
whether a foreign investor’s nominee is present or not.
The right of a foreign investor’s nominee to constitute
valid quorum for meetings shall be considered a
protective right.
All the existing insurance companies irrespective of their
intention to increase foreign stake-holding, are required to
comply with these guidelines by January 2016.
Reports suggest that with the new norms, multinationals can
no longer enter into agreements which give them a veto power
in the management of the insurance business.
Guidelines on remuneration of Chief Executive
Officer (CEO)/ Whole-time Director (WTD)/
Managing Director (MD) of Insurers
Under the current regulations, there are no limits set by the
IRDAI on the remuneration of CEO/WTD/MD of life insurance
companies apart from the clause of remuneration beyond
INR15 million should be debited to shareholder’s fund. The
IRDAI has issued guidelines outlining a framework of the
compensation of top-level executives. It suggests formulation
of a comprehensive compensation policy and an annual
review thereafter. The key recommendations are:
Compensation should be adjusted for all types of risks,
compensation outcomes should be symmetric with risk
outcomes and the pay-outs should be sensitive to the
time horizon of the risk.
Asset mix of compensation in terms of cash and equity
must be consistent with risk alignment.
The fixed and variable pay components must be
reasonable and balanced. Employee Stock Option Plan
(ESOP) may be excluded from the variable pay but the
extent of ESOP should be reasonable. The variable
component must be attached to the financial
performance of the insurer.
Sweat equity should be governed by the regulations of the
Sweat Equity Regulations issued by Securities and Exchange
Board of India (SEBI).
Anti-Money Laundering (AML)/Counter-
financing of Terrorism (CFT) Guidelines
The IRDAI has issued guidelines on AML, requiring life
insurers to establish an AML programme for guarding against
insurance products being used to launder unlawfully derived
funds or to finance terrorist acts. The regulator has laid
emphasis on “know your customer” norms, due diligence, risk
assessment and implementation of Unlawful Activities
(Prevention) Act. The programme envisages submission of
reports of certain transactions to Financial Intelligence Unit-
India. Suspicious Transactions Report (STR) is another
measure to ensure that all complex, unusually large
transactions with odd patterns are scrutinised for their
authenticity.
Copyright © 2015 Towers Watson. All rights reserved. towerswatson.com 10
IRDAI (Issuance of Capital by Indian Insurance
Companies transacting Life Insurance
Business) Regulations, 2015
The IRDAI has issued exposure draft on issuance of capital by
life insurance companies allowing life insurance companies to
go for an IPO subject to compliance of the lock-in period
specified in the certificate of registration. The key highlights of
the exposure draft are:
It gives the IRDAI the authority to direct a life insurance
company to issue its IPO within one year, if the
circumstances warrant so.
It has removed the prerequisite condition of the EV to be
twice of the share capital plus securities premium.
The insurer would be required to provide additional
disclosures on agent productivity, investment in equity
and bonds, value of new business, reinsurance strategy
and significant accounting policies.
Reports suggest that large insurance companies – ICICI
Prudential Life, SBI Life and HDFC Life, with Assets Under
Management (AUM) of more than INR600 billion might be
directed by the IRDAI to issue IPO so that the sharing of risks
and returns are not concentrated in one or two partners. It is
expected that this would result in greater transparency and
accountability required for efficient management of
companies.
IRDAI (Registration of Corporate Agents)
Regulations, 2015
The existing regulation on corporate agents followed a tied
agency model, in which a corporate agent could have a tie-up
with only one insurer from the same line of business. As
covered in our India Market Life Insurance Update, Edition 59,
an exposure draft on registration of corporate agencies was
issued allowing a life insurance corporate agent to have
arrangements with a maximum of three life insurers to solicit,
procure and service their life insurance products.
The exposure draft has now been formalised as a regulation
with some additional guidelines for the corporate agents that
intend to undertake telemarketing activities. The corporate
agent is required to file with the IRDAI the names of
authorised verifiers engaged by the telemarketer, for them to
be issued a certificate.
Reports suggest that the IRDAI is further planning to
strengthen the norms against mis-selling by corporate agents
by making the intermediaries accountable for the policies sold
by them. Each policy will have to be mapped to the person
selling it such that the person responsible can be tracked
easily in the event of any complaint.
IRDAI (Preparation of Financial Statements
and Auditors’ Report of Insurers) Regulations,
2015
Pursuant to the notification of the Insurance Laws
(Amendment) Act, 2015 the IRDAI has released exposure
draft to amend the existing Preparation of Financial
Statements and Auditor’s Report of Insurance Companies
Regulations, 2002. The key highlights include:
Revised formats to capture other forms of capital and
head office account (applicable to foreign reinsurer
operating through branch office established in India).
Stipulation barring any investment in property for self-
use using funds of participating business.
In addition to the existing, the draft exposure has
introduced a few other accounting principles for
treatment of forward exchange contracts, preliminary
expenses and catastrophe reserve.
The draft also lays down the instructions for preparation
of financial statements for unit – linked products and
group insurance business.
IRDAI (Obligations of Insurers to Rural and
Social Sectors) Regulations, 2015
Our India Market Life Insurance Update, Edition 59, covered
draft regulations on the Obligation of Insurers to Rural and
Social Sectors, 2015. The IRDAI has now finalised the
regulations that shall be applicable from FY2016-17. Key
highlights of the regulations:
The rural sector obligation has been defined as a
percentage of the total policies written in that year. The
percentage is dependent on the number of years the
insurer has been in business. The obligation ranges
from 7% in the first financial year to 20% from the 10th
financial year onwards.
The regulation also stipulates insurers during the second
year of business to sell a minimum of 0.5% of total
business procured in the preceding financial year in
socially backward areas, this would gradually increase to
5% from year ten onwards.
Every insurer is required to have effective operational
procedures for accurate classification of business
obligations into the rural and social sectors.
In addition to this, insurers are required to submit an
annual certificate, furnishing the actual business details
of the fulfilment of these obligations.
Copyright © 2015 Towers Watson. All rights reserved. towerswatson.com 11
Others
It has been reported that some insurers have been found to
not fully comply with claim settlement orders passed by judicial
or quasi-judicial bodies such as the consumer forum and
insurance ombudsmen. The IRDAI has issued a circular
directing all insurers to comply with such orders or appeal
against the order within the stipulated time or within 60 days if
a time frame is not explicitly provided.
In line with the Government of India’s Digital India Initiative,
the IRDAI is rolling out an online system to track product
development and approval process. Insurers would be asked
to provide the required information in a prescribed format and
the platform would also be used to resolve any queries that
the IRDAI might have. This process is intended to provide
greater transparency and accelerate product approval time-
frames.
Our India Market Life Insurance Update, Edition 50, reported
the proposed regulation mandating life insurance companies
to reinsure up to 30% of sum assured on each policy with
domestic reinsurer - General Insurance Corporation of India
(GIC Re). However, following further deliberations, in
particular with respect to presence of other domestic
reinsurers, it is reported that the IRDAI is yet to finalise the
quantum of risk to be transferred and the proposal has been
put on hold.
The IRDAI has issued regulations regarding “Maintenance of
Insurance Records”, directing life insurance companies to
maintain electronic records of all policies and claims
completely and accurately with necessary security features. It
is also mandatory to provide access to these records to the
Authority for both onsite and offsite inspections. The Board is
required to frame a policy for the manner and maintenance of
the records, such policy should be reviewed once in a year,
within 90 days after financial year end. Once finalised, the
insurer is required to submit its board approved policy on
maintenance and storage of such records to IRDAI.
The IRDAI recently issued guidelines for the general and
health insurers on the “Point of Sales Person”, an individual
who solicits and markets only certain pre-underwritten
products approved by the Authority. The IRDAI recognised
that the individual marketing such products requires a lesser
degree of training and level of examination. Reportedly, life
insurers have approached the regulator to allow for the same
provision in the sphere of life insurance as well. Reports
suggest that such a move will increase insurance penetration
and reduce the overall cost of distribution.
Copyright © 2015 Towers Watson. All rights reserved. towerswatson.com 12
Distribution update “The reporting period saw an increased focus on developing IT enabled and online presence by life insurers.
The industry also witnessed some changes in the bancassurance tie-ups for a few key insurers. In this
edition, we have also included our study of the growth in new business premium income by different
channel in the first half of FY2015-16 which is driven largely by the bancassurance channel for the majority
of the top ten private life insurers by weighted new business premium collections.”
Bajaj Allianz Life has renewed its bancassurance partnership
with Dhanlaxmi Bank. As per the new agreement, the bank will
continue to be its bancassurance partner for nine years. The
insurer expects to leverage the bank’s pan India presence with
a network of 280 branches to sell its life insurance policies.
Bharti AXA Life is planning to open five branches in FY2015-
16, as a part of its strategy to expand its presence in the north
east and tier three cities. As a further enabler to its expansion
plans, the insurer is targeting to strenghten its active sales force
by adding 200 to 300 personnel.
Future Generali Life is reportedly aiming to drive its growth by
entering into various bancassurance partnerships along with an
addition of 8,000 to 10,000 agents to its agency force in
FY2015- 16. Additionally, the insurer is also working towards
launching simplified underwriting products that can be sold
easily and quickly over the counter.
Paytm is partnering with insurance companies in order to
facilitate the cashless payment of renewal premiums through
smartphones. It has started with three insurers – HDFC Ergo,
Religare Health Insurance and ICICI Prudential Life. With this
facility, policyholders can log on to a mobile application and pay
premiums using the Paytm wallet.
Kotak Life aims to strengthen its distribution network with
emphasis on bancassurance. It expects a growth of 25% in
gross written premiums in the current financial year, increasing
the contibution from bancassurance channel to 50% from the
current 45%. In additon to this, the insurer plans to expand its
active agency force, and increase digitisation so as to ease the
process for both the bancassurance channel and agents.
LIC, is planning to hire 0.2 million agents in FY2015- 16 as a
part of its recruitment drive for agents. The insurer expects
nearly 85% contribution towards the business by its agency
force.
Shriram Life has entered into a partnership with Telenor
Communications India, with the aim of providing insurance
services to the telecom customers. The tie-up will increase
insurance penetration by spreading insurance awareness
among the large rural and semi urban population. Reportedly,
the insurer is also planning to open about 30 new branches in
the country,with a major focus on Gujarat, in the FY2015-16 and
is targeting a 30% hike in its new business revenues by this
move.
Tata AIA Life has tied up with IndusInd Bank to provide life
insurance cover through the bank’s branches. As per reports,
a wide range of protection, savings and wealth creation plans
will be offered through the banks network of 854 branches.
Reportedly, this is the second largest bancassurance tie-up for
the insurer. Prior to this, IndusInd Bank was a distribution
partner of Aviva Life.
To leverage online distribution channels, insurers are focussing
on strengthening their online presence through various
initiatives as below:
Bharti AXA Life aims to launch more online specific
products in the next two to three years.
Future Generali Life has launched an online portal to
digitise its customer service procedure. The portal
provides all the necessary details pertaining to the
products and gives the customer an easy to use
platform. The insurer is also planning to launch a new
online term plan followed by an online endowment and
an online unit linked product.
SBI Life recently bought 100,000 sq ft office space in
Navi Mumbai, with the aim of developing its IT
resourcing.
India Post is reportedly planning to expand its life insurance
business by offering a range of savings and insurance
products to the general public, apart from its existing offering
to the postal staff and government officials. It plans to
leverage on its wide reach of 160,000 post offices, 45,000
postmen and 250,000 extra employees to offer a multitude of
products and increase its insurance segment by 500%.
Copyright © 2015 Towers Watson. All rights reserved. towerswatson.com 13
Growth in individual unweighted new business premium income by channel during April to
September 2015:
New business momentum driven by bank-led distribution models.
An analysis of public disclosures by life insurers show an
overall decline in the individual new business premium
collections for April to September 2015 compared to the same
period in the previous year. The individual unweighted new
business premium collection reduced by 10.1% in the industry,
a fall which can largely be attributed to the sluggish
performance of the agency channel, which witnessed a
decline in new business collections of 14.4%. This decline in
the agency channel contrasts with a growth of 3.6% for
bancassurance and a marginal 0.7% growth for other
channels.
The following chart sets out relative contribution of each
agency, bancassurance and other channels to overall growth
in individual unweighted new business. Masked within the
overall decline in individual unweighted new business
collections for the industry is experience of the private players
which combined witnessed a grown of 16.2% from first half of
FY2014-15 and that of LIC which witnessed a fall of 23.5%
year-on-year.
The growth of 16.2% for private players was largely driven by
growth in new business from bancassurance of 12.7% with
growth in agency remaining relatively flat for private players as
a whole. The relative channel performance is evident as 7 out
of top 10 private insurers that have registered a year on year
growth in individual new business premium are either bank-
promoted insurers or have significant bancassurance tie-ups,
whilst the three insurers that experienced fall in the
unweighted individual new business premium income are all
agency led. This is represented in the chart through relative
contribution of each channel in the overall growth for each
company.
Amongst the top 10 private insurers, Kotak Life and SBI Life
witnessed the highest growth in unweighted individual new
business premium income for the half year. Whilst the growth
for SBI Life was largely bancassurance driven, Kotak Life
demonstrated a balanced performance of its bank and agency
channels. The only other insurer with relatively balanced
performance across these two channels was Max Life with all
other insurers witnessing starkly different outcomes across
channels. This is represented in the chart through blue/black
markers showing the absolute year-on-year growth in
bancassurance/agency channel for first half of FY2015-16.
Birla Sun Life, which saw its bank-distribution partner,
Citibank move to Tata AIA earlier in the year is the only
private life insurer among those represented under the study
to register a decline in its individual new business sourced
through bancassurance channel.
Source: Towers Watson analysis using public disclosures data.
*Figures for Aviva Life, Sahara Life, Bharti AXA Life and Canara HSBC OBC Life are not available as at September 2015 and hence have been excluded from the
above analysis.
Copyright © 2015 Towers Watson. All rights reserved. towerswatson.com 14
Products update “There was an increased focus on unit-linked products with nearly two-fifths of the new product launches
during September to November 2015 being linked products. Insurers are also looking to launch online
insurance plans – covering both savings and protection products - to strengthen their presence in the digital
space.”
There has been a renewed interest in unit-linked products,
driven by a positive economic outlook, leading to a 20% to
30% annualised gains in unit-linked funds over the past three
years, as well as a resurgence in sales of unit-linked policies.
We have observed a relatively higher number of unit-linked
product launches during the current reporting period as
compared to the previous quarter.
Meanwhile Exide Life is reportedly planning to re-align its
strategy to shift its new business mix towards a greater
proportion of unit-linked products from its current portfolio
dominated by non-linked products. SBI Life however has
stated that it intends to maintain a business mix as
diversified as possible.
To improve policy persistency, PNB MetLife has launched a
reinstatement drive which would enable the customers to
avail waiver on reinstatement charges.
Bajaj Allianz Life has also announced a special revival
campaign to help policyholders renew their lapsed traditional
life insurance policies. As per media reports, under the
campaign, customers would be given a 50% waiver on the
interest amount payable since the policies lapsed.
Select company-wise new product launches during the
period September to November 2015 are summarised in the
table below:
Company name Product name Product description
Aviva Life Aviva Dhan Vriddhi Plus Non-linked; participating limited pay endowment plan. It provides flexibility to choose the premium payment term from 5, 7 and 11 years. It offers a maturity benefit of 100% of premiums paid along with accrued bonuses.
Bharti AXA Life Bharti AXA Life Child Advantage Non-linked; participating endowment child plan offering two benefit pay-out options. It also provides waiver of future premiums on death.
Birla Sun Life BSLI Wealth Aspire Plan Unit-linked; non-participating endowment plan. Loyalty additions are accrued at the end of every fifth policy year, starting from the fifth or tenth policy year depending upon the amount of premium paid.
DHFL Pramerica Life DHFL Pramerica e-Save Plan Online non-linked; non-participating endowment plan offering annual guaranteed additions based on the amount of annualised premium.
DHFL Pramerica Rakshak Gold Non-linked; non-participating limited pay endowment plan offering annual guaranteed additions at the end of policy year that will increase after every three policy years.
Edelweiss Tokio Life Edelweiss Tokio Life Dhan Labh Non-linked; non-participating limited pay endowment plan offering assured additions every year starting from the 13th policy year.
Future Generali Life Future Generali Jan Suraksha Non-linked; non-participating single premium term insurance.
Future Generali Flexi Online Term Plan
Online non-linked; non-participating term insurance that offers flexibility to choose the form of death benefit from three options – lump sum benefit, monthly pay-out or a combination of lump sum benefit and monthly pay-out.
HDFC Life HDFC Life Click2Retire Online unit-linked; non-participating pension product offering a guaranteed vesting benefit. It has no entry/exit and policy administration charges associated. It provides single and limited pay options.
Copyright © 2015 Towers Watson. All rights reserved. towerswatson.com 15
Company name Product name Product description
HDFC Life Assured Pension Plan Unit-linked; non-participating pension product with limited pay and single pay option available. It provides loyalty additions every alternate year after 11th policy year.
IDBI Federal Life IDBI Federal Wealthsurance Future Star Insurance Plan
Unit-linked; non-participating child plan. It offers up to nine fund options to invest in. It offers waiver of future premiums on death as well as guaranteed loyalty additions at specified policy intervals.
Kotak Life Kotak Premier Pension Plan Non-linked; participating pension plan providing guaranteed additions in the first five policy years and bonuses from the sixth policy year. It also offers a minimum guaranteed benefit and additional protection through riders.
Max Life Max Life Platinum Wealth Plan Unit-linked; non-participating endowment assurance plan with a choice of five funds to invest in and unlimited free switches in a policy year. It offers guaranteed loyalty additions and additional units at the end of every five years starting from the tenth policy year. It also provides an option of dynamic fund allocation where a large proportion of premium is invested in equity oriented funds.
Max Life Monthly Income Advantage Plan
Non-linked; participating limited pay anticipated endowment plan offering guaranteed monthly income for a period of 10 years after the premium paying term. It also offers optional term and accidental death and dismemberment riders.
SBI Life SBI Life CSC Saral Sanchay Non-linked; non-participating variable insurance plan. It offers guaranteed minimum interest rate of 1% per annum and also provides flexibility to choose premium amount with a minimum annual premium of INR 2,400. A top-up premium option is also available which can be used to increase the sum assured.
Star Union Dai-ichi Life SUD Life Aayushmaan Non-linked; participating endowment plan providing guaranteed additions at end of each policy year for the first five policy years. It offers the options of accidental death and total and permanent disability benefit and family income benefit riders.
SUD Life Group Retirement Benefit Plan
Unit-linked, non-participating group insurance plan for gratuity and leave encashment liabilities of employers. It provides an option to choose from four investment funds.
Copyright © 2015 Towers Watson. All rights reserved. towerswatson.com 16
An archive of previously published India Market Life Insurance Updates is available at: www.towerswatson.com/en-IN/Insights/Newsletters/Asia-Pacific/india-market-life-insurance
Contact details
Towers Watson's Risk Consulting team covers the length and breadth of India with associates based in Mumbai and Gurgaon.
The India Market Life Insurance Update has been prepared by
Towers Watson for general information purposes only and does not constitute professional advice. The information, opinions and projections contained in this Newsletter are derived from various sources and have not been independently verified by Towers Watson. If you require professional advice or require any further information please contact any of the above named individuals.
Research and editorial team Vivek Jalan Kunj Behari Maheshwari Abhilasha Goyal Ashik Salecha Esha Goel Sanya Gupta
Further Information For further information please contact your Towers Watson Consultant or:
Vivek Jalan
Director – Risk Consulting and Software Towers Watson India +91 124 432 2816 [email protected]
Dilip Chakraborty
Senior Adviser Towers Watson India +91 124 432 2800 [email protected]
Kunj Behari Maheshwari
Director – Risk Consulting Towers Watson India +91 124 432 2821 [email protected]
Towers Watson's Risk Consulting team covers the length and breadth of India with associates based in Mumbai and Gurgaon.
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