Life insurers to abide by IRDA's directions, says Council
Life insurance industry association Council on Sunday said insurers will abide by IRDA's direction and would continue business as usual. The 14 life insurers would abide by the IRDA's direction to continue business as usual," Life Insurance Council Secretary General S B Mathur said when asked if the insurance companies would continue to sell ULIP policies following the regulator IRDA's directions. Market regulator SEBI on Friday last week banned 14 life insurance companies from raising funds through unit-linked insurance policies, which invest the money collected into equity and debt markets. Insurance sector regulators IRDA, however, yesterday rejected the SEBI ban and asked the insurance companies to do business as usual. Unit-linked equity products (ULIPs) are insurance plans sold by life insurers where the money collected from consumers is invested into equity and debt markets and returns are linked to the same. Regulation of ULIPs has become a bone of contention between the two regulators. The turf war concerns the nature of ULIPs which account for over 50 per cent of the total life insurance business in the country. As on March 31, 2009, total funds under the management of life insurance sector stood at over Rs 9 lakh crore of assets, according to the Life Insurance Council's figure. The life insurance companies against whom SEBI passed the order are SBI Life, ICICI Prudential, Tata AIG, Aegon Religare Life, Aviva Life, Bajaj Allianz, Bharti AXA, Birla Sunlife, HDFC Standard Life, ING Vysya Life, Kotak Mahindra Old Mutual Life, Max New York Life, Metlife India and Reliance Life.

Clouds of uncertainty over ULIPs
The controversy about Unit Linked Insurance Plans (ULIPs) has reached an inflexion point with SEBI on Friday banning of 14 of the 25 insurance companies from marketing ULIPs.SEBI's order does not mention insurance companies such as LIC, IDBI Fortis and a few other bank-sponsored life insurance companies.Based on data from the IRDA's 2008-09 annual report, ULIPs managed total funds of Rs.1.72 lakh crore as of March 2009. Insurers such as ICICI Pru Life, Bajaj Allianz, SBI Life and Birla Sun Life were the ones with the biggest ULIP assets.A rough calculation suggests that ULIPs could be managing close to Rs 2.3 lakh crore now, after accounting for the market appreciation and new premium collected, inclusive of LIC (about Rs.1.2 lakh crore).Ever since the launch of ULIPs by private insurers in 2003-04, there has been friction between mutual funds and life insurance companies.With SEBI banning entry loads on mutual fund schemes, which in turn led to MF agents upfront commissions going down to 0.5 per cent from the earlier 2 per cent, inflows into mutual funds declined sharply.In an interaction with Business Line, commenting on the ban, Life Insurance Council Secretary-General, Mr S. B. Mathur, said that it was unfortunate that SEBI had imposed this ban, but felt that the insurance companies would explore various possibilities to find an acceptable solution. IRDA is expected to issue a circular this regard and also may take up the matter with SEBI.We spoke to several insurance companies to have their view on this order and the majority of them felt that IRDA was more competent to comment on this. But a top insurance official on the condition of anonymity, raised the question of how claims of existing ULIP holders will be dealt with now. “If I am not allowed to accept his premium, if the death occurs, who will be responsible for (fulfilling) the insurance contract? Under Type I ULIPs, the fund value or the sum insured will be paid as death benefit.The ULIP is a unified contract, investment contract cannot be taken out separately and be subject to a certain regulator.”An insurance agent said : “SEBI's recent crackdown on upfront commission being paid to agents, being charged as expenses for arriving at the net asset value means that we are not going to get any (upfront) fee for marketing mutual fund products. With the ban on ULIPs, we will be completely thrown out of the financial intermediary business. This may impact our life very seriously.”

ADAG eyes foreign partners for life, general insurance biz

The Anil Ambani Group-promoted Reliance General Insurance is looking to buy a majority stake in its rival Royal Sundaram, while talks are in advanced stages to bring in Swiss Re as foreign partner in its life insurance venture. While talks have reached advanced stages for sale of 10-15 per cent stake in Reliance Life to Swiss Re for an estimated Rs 1,500 crore, a possible buyout of the Sundaram Group's 74 per cent stake in Royal Sundaram Alliance Insurance could take some time due to regulatory issues, sources in the know of the developments said. Royal Sundaram Alliance Insurance Company is a joint venture between the Sundaram Group and the England-based RSA, which owns 26 per cent stake in the alliance. Though the deal size could not be ascertained, it can be noted that Royal Sundaram has mopped up Rs 820 crore premium in the first 11 months of this fiscal, compared to Rs 1,847 crore premium collected by Reliance General. If successful, it would be the first time that a general insurance firm acquires a rival and therefore the relevant guidelines need to be sought from the sectoral regulator Irda. In the life insurance space such a deal has happened in the past when Reliance Life acquired AMP Sanmar in 2005. Both Reliance Life and Reliance General are part of Reliance Capital, the Anil Dhirubhai Ambani Group's financial services arm. With these two separate deals, Reliance Capital is seeking foreign alliances to run both its life as well as general insurance businesses, sources said. When contacted, ADAG spokesperson declined to comment, while Royal Sundaram did not respond to an e-mail. RSA's external communications director Louise Shield said, "we don't comment on rumours and speculation so have no response to make." When contacted, Swiss Re's director for communications (Asia division) Kwokchoi Wong said the company "does not comment on market rumours". As per the existing rules, a foreign entity can hold only up to 26 per cent stake in an insurance firm in the country. Besides plans to offload 10-15 per cent stake to a foreign partner, Reliance Life could sell additional 10-15 per cent shares through an initial public offer, for which it is awaiting final IPO guidelines from Irda, expected by the end of the next month. For nearly a year, Reliance Capital has been planning either an IPO or strategic sale of its life insurance business to unlock value for shareholders. After the strategic stake sale to foreign firms, as and when it happens, Reliance Life could also come out with an IPO, according to sources. "Depending on the interest from foreign firms (for buying a maximum of 26 percent stake), the company (Reliance Life) could come out with an IPO," a source said.