Irda issues norms for universal life insurance products

Wednesday November 24, 11:03 AM Source: Indian Express Finance By fe Bureau

The Insurance Regulatory and Development Authority (Irda) has issued guidelines for universal life products or variable insurance products (VIPs). In a note to CEOs of all life insurance companies, Irda said all VIPs will only be offered under the non-unit linked platform.

VIPs are to be defined as non-linked life insurance products that provide a death benefit equal to the guaranteed sum assured, together with the balance in the policy account, Irda said. Besides, every policy shall have a corresponding policy account whose balance shall depict the accrual to the policyholder. The policy account shall be credited with premium net of all charges, Irda said. The guaranteed rate and bonus shall be applicable to the balance of the policy account. The statement of policy account shall be sent to the policyholder at least once a year.

Malay Ghosh, president & executive director, Reliance Life Insurance, said the Irda has defined the universal life product for the first time. "Though I'm yet to go through the Irda guidelines, I hope two of our traditional products may come under the definition of the universal life product, which have already been withdrawn by us temporarily since the circulars was issued by Irda on October 22. We are looking into the guidelines on the subject,'' he said .

According to the new guidelines, the policyholder will be offered the flexibility of changing the sum assured during the currency of the contract, subject to a minimum assured sum. The guidelines specify that no group insurance contract is allowed for these products at this stage. A top-up premium is allowed throughout the term.

However, at any point of time during the currency of the contract, the total top-up premium paid shall not exceed the sum total of regular premiums paid at that point of time. Besides, no partial withdrawal shall be allowed under this product. But a loan amount of not more than 60% of the balance may be extended at a rate of interest, the Irda notification said.

All VIPs shall be offered as traditional products either as participating or non-participating, as per the current practice. Further, for all modes of premium payment (viz., annual, half-yearly, quarterly and monthly) the additional interest rate (for non-par) or the bonus (for par) shall be declared once a year (immediately after the annual actuarial valuation i.e., as on March 31 of each year) which is to be credited to the policy account in the manner as specified in clause 4. The guaranteed rate is to be credited to the policy account at least on quarterly basis.

The insurer has to keep a separate account of all receipts and payments in respect of this product. The valuation of assets and liabilities shall be in accordance with the Irda (assets, liabilities and solvency margin) Regulations, 2000.The insurance regulator had banned sale of universal life insurance policies in October after receiving complaints on the sale practices of the insurers. However, Irda had issued the draft guidelines for these products.

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Insurers can't outsource work; M&A norms soon

Wednesday November 10, 04:15 PM Source: Indian Express Finance By fe Bureau

New guidelines for mergers and acquisitions among non-life insurance companies are expected soon with the Insurance Regulatory Development Authority (Irda) initiating the process after receiving proposals for the same from two non-life insurance companies.

Also, Irda came out with guidelines on outsourcing by all insurers, both in life and general, which will come into practice with immediate effect. Insurers will have to terminate all outsourcing especially core activities such as investment, underwriting and policy servicing to third-party companies. "With regard to merger among non-life insurance companies, even though there's no specific provision in the enactment (Insurance Act), there is one certain specific circumstance where Irda could direct a merger. Other than the genuine provision, there are no specific guidelines required for the M&A process," Irda chairman J Hari Narayan said after launching an SMS-based customer care initiative by SBI (SBIN.NS : 3039.85 +48.9) Life here. "We have received M&A proposals from two non-life insurance firms and are evaluating the same. As far as M&A guidelines for life insurance companies are concerned, there's already a provision in the Insurance Act. We are examining the two proposals that will set the blueprint for guidelines for M&As among non-life companies," he said. There are about 22 life insurance companies and 21 non-life insurance companies operating in the country. The proposed norms are expected to spur consolidation leading to fewer but stronger players in the insurance sector.

Talking about the regulator's near-term goal, the chairman said Irda is working to enhance policy holder protection.

Further, to streamline the health insurance norms, Irda has formed six working groups under the umbrella of Ficci and CII to look at various aspects of health insurance.

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Easy norms to help banks infuse extra capital in insurance arms...

Wednesday November 3, 04:02 AM Source: Indian Express Finance By fe Bureau

In a bid to help banks to infuse additional capital in their insurance subsidiaries, the Reserve Bank of India (RBI) has said the entire investments in the paid up equity of the subsidiaries (including insurance entities), will be deducted at 50% from tier-I and 50% from tier-II capital.

"Earlier the entire amount which the bank was investing in insurance companies was getting deducted from tier-I for calculating the capital adequacy of the parent banks, but now will be deducted equally both from tier-I and II. In this way the banks will be in a position to infuse more capital to the insurance subsidiaries,'' said Ashvin Prekh, partner, national leader, global financial services, Ernst & Young.

RBI has also reduced the investment threshold in subsidiaries to 20% from 30% for applying its new norms.

RBI had constituted an internal group on the supervision of financial conglomerates (FCs) in the country. The internal group had made various recommendations for strengthening the supervision of the FCs, including changes in certain regulatory norms.

As per Basel II framework, investments in the equity of subsidiaries or significant minority investments in banking, securities and other financial entities, where control does not exist, together with other regulatory capital investment in these entities are required to be excluded from the banking group's capital if these entities are not consolidated.

Accordingly, RBI has proposed that the entire investments in the paid up equity of the entities (including insurance entities), where such investment exceeds 20% of the paid up equity of such entities will be deducted at 50% from tier-I and 50% from tier-II capital when these are not consolidated for capital purposes with the bank. In addition, entire investments in other instruments eligible for regulatory capital status in these entities shall also be deducted at 50% from tier-I and 50% from tier-II capital; and the deductions indicated above will also be applicable while computing capital adequacy ratio of the bank on a solo basis.

The capital adequacy requirement will be further calibrated after finalisation of the Basel III rules.

Also, in order to limit the inter-connectedness between the bank and other group entities, the central bank has proposed to put in place an appropriate limit for such transactions and exposures, both for a single entity and on an aggregate basis for all other group entities.

The detailed guidelines in this regard will be issued separately.

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Irda's rural biz norms put LIC on backfoot

Wednesday November 17, 03:34 AM Source: Indian Express Finance By Kumud Das

The stringent norms of Insurance Regulatory & Development Authority (Irda) on rural business has put the state-owned Life Insurance Corporation (LIC) on the back foot in expanding its rural business .

Irda norms make it mandatory for the life insurers to generate at least 25% of total business from the rural regions. The norms alternatively say that the life insurers have to each year improve their rural business by 2%. The life insurers who fail to comply with the regulations have to pay a penalty of Rs 5 lakh. LIC which has already achieved the mandatory 25% target in rural business sometime back and has crossed 31% in the current year is reluctant to grow the business further as it has to set a new bench mark for the next year. "Doing rural business is not easy. It would be difficult to grow the business 2% more than the earlier year each time. This rule rather puts a restriction in expanding our rural business,'' said a senior LIC official In fact LIC had earlier paid a penalty of Rs 5 lakh as it had failed to comply with the rural business norms.

LIC has already done 31% business from the rural areas in the current fiscal. Last year, the corporation had done 27% business in the remote parts of the country. However, with the stringent IRDA norms, the corporation will have no option but to shelve its rural business plans. "We have got a bigger base and we have been increasing our base in the rural areas each year too. But, if Irda wants us to increase our rural base by 2% as compared to our earlier achievement, then it will be quite difficult for us,'' said the official.

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