India's biggest farm equipment maker Mahindra & Mahindra plans to venture into general insurance business

MUMBAI: Mahindra & Mahindra Group , the biggest farm equipment makers in the country, is planning to tie-up with an experienced company to venture into the Rs. 40,000-crore general insurance business, which is growing at around 20% a year. 

The group, which has a lending business in Mahindra & Mahindra Financial Services Ltd , has mandated consultants KPMG to find a partner who would have technical experience in running a general insurance business, including writing covers for industrial accidents and automobiles. 

The group is present in the insurance broking business through Mahindra Insurance Brokers . Magma is the last NBFC to enter into non-life space by manufacturing insurance products. 

Magma Fincorp and its associate company, Celica Developers , have formed a joint venture with German insurer, HDI-Gerling to foray into insurance. Another conglomerate L&T has started an insurance subsidiary last year. The general insurance arm of the company is a 100% owned subsidiary of L&T without a foreign partner. 

Mahindra will be the 24th non-life insurer in the industry. There are 23 non-life insurance companies, of which four are public sector insurers. The entry of new players could put pressure on premium rates. 

HDFC plans IPO for insurance business in two years

Housing Development Finance Corporation(HDFC) on Friday said that it may come out with an initial public offering (IPO) for its insurance business in about two years. 

"We are planning to come up with an IPO for insurance in two years," HDFC Chairman Deepak Parekh said at the annual general meeting ( AGM )) of the company. 

Parekh said the new Insurance Regulatory and Development Authority (IRDA) guidelines that allow life insurers to float an IPO without three year profitability clause would help but said the firm would need to discuss about it with its partner Standard Life. 

He said Standard Life would have to increase its stake to 49 per cent from the current 26 per cent, so that part of its shares (the increased stake) can be offered to the investors. 


Source- Economic times

IRDA scraps profit rule for life insurance IPOs

The insurance regulator has scrapped the minimum three year profitability clause for life insurers to float initial public offerings, throwing a lifeline for many companies that would have struggled for capital. The Insurance Regulatory and Development Authority , or Irda, took the decision in a recent board meeting, two people familiar with the matter said. 

The decision to do away with the requirement, which was part of the draft guidelines for IPOs, follows lobbying by insurance firms that the absence of higher foreign investment and access to public funds could cripple their businesses. Valuing insurance companies in India may become tricky with some arguing they are at a growth stage and the market has huge potential. While insurers may look for high valuations due to market potential, their losses could be talked down as it happened in the case of dotcom companies. The insurance regulator had prescribed a minimum embedded value for which the insurers objected to and sought flexibility. 


SOURCE-http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/irda-scraps-profit-rule-for-life-insurance-ipos/articleshow/9131020.cms

Industry welcomes draft Bill on microfinance

The government on Wednesday released the draft of a new Bill to govern microfinance institutions (MFIs) that will, if approved in its entirety, take them outside the purview of state-level legislation, including the Andhra Pradesh law that has thrown the industry into crisis.

The Microfinance Institutions (Development and Regulation) Bill gives more powers to the Reserve Bank of India (RBI) to regulate microlenders. It will cover all MFIs, including the smaller ones. MFIs give tiny loans to poor borrowers at around 24% interest. The Bill has to be approved by the cabinet and Parliament before it becomes law.

More than a quarter of the industry is concentrated in Andhra Pradesh, which promulgated a law in October restricting operations of microlenders. This led to a drastic rise in bad loans as borrowers stopped repaying debt. Banks in turn stopped lending to MFIs. The state law, which had been preceded by an ordinance, followed reports of coercion in recovering loans that allegedly led to suicides.

Early this year, RBI issued regulations to govern MFIs operating as non-banking financial companies, based on the recommendations of an expert committee headed by noted chartered accountant Y.H. Malegam. The new rules capped the interest rate MFIs can charge at 26% and made a minimum two-year tenure mandatory for all loans above `15,000.

While the panel looked into operational issues, the new Bill provides an overarching framework, signalling the government’s stand on the importance of the industry, said Mathew Titus, executive director of Sa-Dhan, an association of MFIs.

In what could affect the larger institutions, the Bill says that any MFI that becomes systemically important will have to register itself under the Companies Act.

The draft Bill also proposes the setting up of a Microfinance Development Council, which will advise the government on policies and programmes required for the development of the sector.

The members of the council will represent the industry, the government, RBI, the National Housing Bank, the National Bank for Agriculture and Rural Development (Nabard) and the Small Industries Development Bank of India. The council will also look into establishing credit information bureaus for the creation of a database of clients who avail of microfinance services from various agencies.

The draft legislation proposes to establish state advisory councils for close coordination between the states and the Centre with regard to the working of the industry.

The Bill also envisages a Microfinance Development Fund to be constituted by RBI to provide loans, refinance, grants, seed capital or any other financial assistance to any MFI and to which all government grants received and fees payable for this sector will go. The Bill will also empower RBI to ask MFIs to cease their activities if warranted upon inspection of the accounts. It will also be able to cancel registration granted to the MFI.

It also gives RBI the option of delegating its powers to Nabard in respect of any MFI or class of MFI. The earlier draft of the Bill had envisaged Nabard as the regulator for smaller MFIs, a move that was opposed by RBI.

Courtesy-http://www.livemint.com/2011/07/06224522/Industry-welcomes-draft-Bill-o.html?atype=tp

Japan earthquake and nuclear catastrophe leaves a Rs 400 crore hole in GIC books

The General Insurance Corporation of India (GIC), the designated national reinsurer, has seen a claim of Rs 400 crore from the catastrophe in Japan. Japan was hit by an earthquake on March 11 this year. This was followed by tsunami and fire outbreak that lasted for close to a week. The entire catastrophe has taken the total economic loss to the extent of $409 billion. "We have seen a loss to the extent of Rs 400 crore from the crisis in Japan," said GIC chairman and managing director Yogesh Lohiya. He said the total economic loss was estimated at around $409 billion.

The insured loss, however, is estimated to be around $40 billion, he added. GIC had mainly reinsured the property risks for catastrophic events. Mr Lohiya said that the entire loss to commercial properties is borne by insurance companies against 80% of the damage to the residential properties absorbed by the government in Japan, while the remaining 20% is with insurance companies. The recent catastrophic events such as floods in Australia, quakes in New Zealand and tsunami in Japan had led to reinsurers to raise rates.

India's RSBY scheme evokes keen interest overseas

Countries like Nigeria,Ghana,Maldives and Bangladesh had evinced keen interest in India's social security schemes,especially Rashtriya Swasthya Bima Yojana and on implementing similar ones back home, Minister for Labour and Employment Mallikarujuna Kharge said here today.

Addressing a state-level workshop on RSBY here,he said RSBY had been appreciated on global platforms like ILO and G-20 Labour Ministers Conference in Washington."Some countries were keen on learning about the scheme and implementing a similar one in their respective countries," he said.

He claimed that RSBY has been rated as one of the top 18 schemes by an international body.

Anil Swarup, Director General, Labour Welfare, Delhi, said a Bangaldesh delegation had twice met Indian officials while similar interactions had taken place with those from Maldives and Nigeria. They had sought guidance on tehnical matters, issue of smart cards and implementation of the scheme,he said.

-http://articles.economictimes.indiatimes.com/2011-07-01/news/29726254_1_rashtriya-swasthya-bima-yojana-health-insurance-bpl-workers

Proposed new insurance norms may adversely impact mergers

India's insurance regulator may be attempting to override legal provisions while also seeking to prevent promoters from exiting ventures within 10 years of starting operations, experts feel. 

Their cause of concern is the recent draft guidelines issued by the Insurance Regulatory and Development Authority -- formally titled the IRDA (Issues of Capital and Disclosure Requirements for Life Insurance Companies) Regulations, 2011. The proposed regulations are to govern the initial public offering by life insurers or for dilution of stake by the promoters. The insurance regulator has called for comments and views on the draft regulations before finalising the same. "According to its apparent tenor, the proposed regulations would prevent promoters from exiting their venture or roping in new partners within 10 years of operations," said D. Varadarajan, a Supreme Court lawyer specialising in company and insurance laws. As per the draft regulations, promoters of life insurance companies can dilute or divest their holdings after 10 years of operations by: 
- issuing capital under the inter-corporate deposit regulations; 
- divesting equity through inter-corporate deposit regulations; and 

- issuing capital or divesting through other means.

The catch lies in the fact that under the proposed norms, the 10-year operations clause may become mandatory for insurance companies proposing to raise capital through a public issue under inter-corporate deposit norms, or if a promoter intends to reduce stake. Experts maintain while the Insurance Act does not bar insurers from going public within 10 years of operations, the regulator may interpret the new norms as though the 10-year operations clause is mandatory, which could hit their future plans to raise money. The Insurance Act has two sections on transfer of shares. Section 6A requires prior nod for transfer of stakes above five percent and Section 6AA deals with public issue or divestment by promoters after 10 years to bring down their holding to 26 percent. "Section 6A of the act expressly provides for transfer of shares when the shareholding is below five percent, without the permission of the regulator. Any transfer in excess of five percent requires the regulator's permission," an insurance expert said. But the draft regulations, if they come into force, may restrict any stake transfer during the first 10 years of operations. "The ambit of Section 6A is entirely different. For all purposes, a lock-in period of 10 years as proposed by the insurance regulator as per norms can't be stipulated here," Varadarajan told IANS. He further said Section 6AA comes into play only when insurance companies go for public issues or when promoters have to dilute their holdings after 10 years of operations. Industry officials conceded as prudent the licensing regulation that bans promoters from transferring or diluting their stakes during first five years of operations to ensure that only serious players enter the business.