31099703 Fundamental Analysis and Its Impact on Insurance Sector

8/13/2019 31099703 Fundamental Analysis and Its Impact on Insurance Sector

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EXECUTIVE SUMMARY

Insurance sector in India is one of the booming sectors of the economy

and is growing at the rate of 15-20 per cent annum. Together with banking

services, it contributes to about .! per cent to the country"s #$%. Insurance is a

federa& sub'ect in India and Insurance industry in India is governed by Insurance

(ct, 1)*!, the +ife Insurance orporation (ct, 1)5 and #enera& Insurance

usiness /ationa&iation (ct, 1)2, Insurance 3egu&atory and $eve&opment

(uthority /I3$( (ct, 1))) and other re&ated (cts.

The tota& &ife insurance premium in India is pro'ected to grow 3s

1,2*0,000 rore by 2010-11.Tota& non-&ife insurance premium is e4pected to

increase at a (#3 of 25 for the period spanning from 200!-0) to 2010-

11.6ome insurance segment is set to achieve a 100 growth as financia&

institutions have made home insurance ob&igatory for housing &oan approva&s.

6ea&th insurance is poised to become the second &argest business for non-&ife

insurers after motor insurance in ne4t three years. ( booming &ife insurance

market has prope&&ed the Indian &ife insurance agents into the "top 10 country &ist"

in terms of membership to the 7i&&ion $o&&ar 3ound Tab&e /7$3T - an

e4c&usive c&ub for the highest performing &ife insurance agent.

This study focuses on fundamenta& ana&ysis and it wi&& he&p me to fo&&ow

insurance market c&ose&y. 8undamenta& ana&ysis is the process of &ooking at a

business at the basic or fundamenta& financia& &eve&. This type of ana&ysis

e4amines the key ratios of business &ike 9%:, $ebt-e;uity, interest coverage etc.,

to determine its financia& hea&th.


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The ma'or ob'ectives of the study were to find out the factors affecting

insurance industry and to study the performance of various insurance companies.

(nother ma'or ob'ective was to study the movement of stock prices of insurance

companies with respect to present economic and government po&ices.

The ma'or findings of the studythat emerged after studying the insurance

sector for se&ecting appropriate company through ana&ying economy, industry

and companies are the g&oba& economies are getting interre&ated< the Indian

market wi&& no &onger be &imited to domestic economic situation. (gricu&tura&

growth rate and the monsoon both have direct inf&uence on insurance and is

responsib&e for the economy to become prosperous. 6ea&th insurance is poised to

become the second &argest business for non-&ife insurers after motor insurance in

ne4t three years.

8ina&&y, the conc&usion drawn was that fundamenta& ana&ysis a&ways ho&ds

good on&y if the company statement are revea&ed c&ear&y and ana&yed proper&y.

Investment is serious business and not making decision on vague and

fundamenta& ana&ysis has a direct impact on insurance market and my important

suggestions are that Insurance companies have &ot of opportunities to grow. :o

investing in these types of industries he&p the investors in the &ong run and beforeinvesting in any company, it=s re;uired to imp&ement a&& the data and financia&

resu&ts.


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CHAPTER-1

INTRODUCTION

INTRODUCTION

Insurance is defined as the contract between Insurance co. /Insurer and the

customer /Insured. In this &ega& contract, the insurer agrees to indemnify

/compensate the insured in &ieu of payment of premium, for any financia& &oss

due to risks covered in the %o&icy.


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Insurance sector in India is one of the booming sectors of the economy

and is growing at the rate of 15-20 per cent per annum. Together with banking

services, it contributes to about per cent to the country"s #$%. Insurance is a

federa& sub'ect in India and Insurance industry in India is governed by Insurance

(ct, 1)*!, the +ife Insurance orporation (ct, 1)5 and #enera& Insurance

usiness /ationa&iation (ct, 1)2, Insurance 3egu&atory and $eve&opment

(uthority /I3$( (ct, 1))) and other re&ated (cts.

The origin of &ife insurance in India can be traced back to 1!1! with the

estab&ishment of the >rienta& +ife Insurance ompany in a&cutta. It was

conceived as a means to provide for 9ng&ish ?idows. In those days a higher

premium was charged for Indian &ives than the non-Indian &ives as Indian &ives

were considered riskier for coverage. The ombay 7utua& +ife Insurance

:ociety that started its business in 1!0 was the first company to charge same

premium for both Indian and non-Indian &ives. In 1)12, insurance regu&ation

forma&&y began with the passing of +ife Insurance ompanies (ct and the

%rovident 8und (ct.

y 1)*!, there were 1 insurance companies in India. ut a number of

frauds during 1)20s and 1)*0s tainted the image of insurance industry in India.

In 1)*!, the first comprehensive &egis&ation regarding insurance was introduced

with the passing of Insurance (ct of 1)*! that provided strict :tate ontro& over

insurance business.

Insurance sector in India grew at a faster pace after independence. In 1)5,

#overnment of India brought together 2@5 Indian and foreign insurers and

provident societies under one nationa&ied monopo&y corporation and formed

+ife Insurance orporation /+I by an (ct of %ar&iament, vi. +I (ct, 1)5,

with a capita& contribution of 3s.5 crore.

The /non-&ife insurance businessAgenera& insurance remained with the

private sector ti&& 1)2. There were 10 private companies invo&ved in the

business of genera& operations and their operations were restricted to organied


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trade and industry in &arge cities.

The #enera& Insurance usiness /ationa&iations (ct, 1)2

nationa&ied the genera& insurance business in India with effect from Banuary 1,

1)*. The 10 private insurance companies were ama&gamated and grouped into

four companiesC ationa& Insurance ompany, ew India (ssurance ompany,

>rienta& Insurance ompany and Dnited India Insurance ompany. These were

subsidiaries of the #enera& Insurance ompany /#I.

In 1))*, the first step towards insurance sector reforms was initiated with

the formation of 7a&hotra ommittee, headed by former 8inance :ecretary and

3I #overnor 3.. 7a&hotra. The committee was formed to eva&uate the Indian

insurance industry and recommend its future direction with the ob'ective of

comp&ementing the reforms initiated in the financia& sector.

:ince 1)5, with the nationa&iation of insurance industry, the state-run

+ife Insurance orporation of India /+I has he&d the monopo&y in that

country"s &ife insurance sector. #enera& Insurance orporation of India /#I,

with its four subsidiaries, was its counterpart in the genera& insurance sector. In

1))), the government passed the I3$( i&& to open up the insurance sector in

India.

In the &ast years, the country saw a &arge number of Indian and foreign

p&ayers rushing to enter this &ucrative and untapped insurance market of India.

The Indian Insurance sector is thus at the beginning of a new era. It has been

on&y a year since the new p&ayers became active and it is difficu&t to say whether

the reforms were successfu&. ut it is be&ieved that the country has a vast

untapped potentia& and the new p&ayers wi&& sure&y use this to their best

advantage.

The insurance sector in India has comp&eted a&& the facets of competition

Efrom being an open competitive market to being nationa&ied and then getting

back to the form of a &ibera&ied market once again. The history of the insurance


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sector in India revea&s that it has witnessed comp&ete dynamism for the past two

centuries appro4imate&y.

INTRODUCTION OF FUNDAMENTAL ANALYSIS

8undamenta& ana&ysis is an important part of &earning to understand the

markets. In the short run, the resu&ts are not a&ways straightforward, they can

even seem backwards. In the &ong run, currencies wi&& a&ways move a&ong with

fundamenta&s. +earning to use fundamenta& ana&ysis wi&& he&p you to understand

the reasons behind trends and give you insight into currency movements.

There are different cyc&es and causing for movements in the economy such as

Boom, Depresso!, Re"esso!#etc., the performance of the economy depends

basica&&y on the monsoon and the growth rate of agricu&ture. The most important

factor is the F8isca& %o&icyG, which incorporates government e4penditure,

ta4ation, borrowing, deficit financing and which inf&uences both pub&ic and

private sector in the economy. The industria& growth in genera& and of

infrastructura& industries in particu&ar inf&uences the corporate performance.


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( method of eva&uating a security by attempting to measure its

intrinsic va&ue by e4amining re&ated economic, financia& and other

;ua&itative and ;uantitative factors. 8undamenta& ana&ysts attempt to study

everything that can affect the security"s va&ue, inc&uding macroeconomic

factors /&ike the overa&& economy and industry conditions and individua&&y

specific factors /&ike the financia& condition and management of

companies.we can do fundamenta& ana&ysis in * steps,

1. 9conomic (na&ysis

2. Industry (na&ysis

*. ompany (na&ysis

ECONOMIC ANALYSIS

9conomic ana&ysis is a process whereby strengths and weaknesses of an

economy are ana&yed. 9conomic ana&ysis is important in order to understand

e4act condition of an economy. It can cover a number of important economic

issues that keep cropping up within a particu&ar economy, which is being

ana&yed. 7any countries of wor&d are p&agued by a rising rate of inf&ation.

9conomic ana&ysis he&ps in providing an e4p&anation of why inf&ation has taken

p&ace. It a&so suggests ways in which rate of inf&ation cou&d be brought down, so

that economic deve&opment cou&d continue.

The Indian economy is one of the fastest growing economies in the

wor&d. The economic survey has pro'ected for the year 2010-11 our growth rate

wou&d be !.5 percent p&us, minus 0.25 percent. The study high&ights some of the

ma'or economic factors that inf&uence corporate earnings and hence insurance

industry in Indian conte4t.

D&timate&y, investor must make inte&&igent 'udgment about the current state of the

market and possib&e changes in the future. ( &ogica& starting point in assessing

the market is to understand the economic factor that determines the stock price.

Dnderstanding the current and future state of the economy is the first step in


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understanding what is happening and what is &ike&y to happen to the market.

9conomic po&iciesC This is the ma'or variab&e affecting the stock market,

especia&&y in the conte4t of the high&y regu&ated environment &ike India. ?hi&e

some po&icies affect specific industries, some have genera& positive or negative

impact on the entire market the recent moves towards economic &ibera&iation

have noticeab&y affect the market sentiments. hanges in credit po&icies

announced by 3eserve ank of India are seen to affect corporate performance.

8isca& po&iciesC 7easures emp&oyed by governments to stabi&ie the

economy, specifica&&y by ad'usting the &eve&s and a&&ocations of ta4es and

government e4penditures. %reparation of nationa& budget is a ma'or event in the

insurance market. ?hi&e changes in ta4 structure introduce in the budget may

affect specific industries, companies some provision affect the entire corporate

sector.

INDUSTRY ANALYSIS

( marketassessmenttoo&designed toprovidea businesswith an idea of

the comp&e4ityof a particu&arindustry. Industry ana&ysisinvo&ves reviewing the

economic, po&itica& and market factors that inf&uence the way the industrydeve&ops. 7a'orfactors can inc&ude thepowerwie&ded by supp&iersandbuyers,

the conditionof competitors, and the &ike&ihood of new market entrants.

The porter=s five-force mode& wi&& he&p the industry ana&ysis. 8ive 8orces

(na&ysis assumes that there are five important forces that determine competitive

power in a situation. These areC

1. :upp&ier %ower

2. uyer %ower

*. ompetitive 3iva&ry

@. Threat of :ubstitution

5. Threat of ew 9ntry

S$r%$e&" Co!s'er%$o! ! I!'(s$r) A!%*)ss
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Imp&ication of pro'ected growth in gross nationa& product for various

industries

Imp&ications of p&an priorities and p&an e4penditures for various

industries.

Imp&ication of industria& and fisca& po&icies of the government for an

industry.

$egree of dependence on scarce non-renewab&e or imported materia&s

and energy intensity.

Hu&nerabi&ity of industry to business cyc&e.

+inkage between the sectors vu&nerab&e to business cyc&e and the

industry.

+ife cyc&e position of industry.

%rice and income e&asticity of end product of industry.

(n ana&ysis of competitive conditions is ref&ected in barriers to entry.

COMPANY ANALYSIS

(fter understanding the &inkages between 9conomy and Industry (na&ysis,

detai&ed company ana&ysis gives us more c&arity about the company. ?e need to

se&ect a sing&e company in a&ready se&ected industry. Dnderstanding business

mode& wi&& he&p us how the company generates revenue and how much it

converts into profit. The ana&ysis focuses on understanding of operating,

financia& and capita& market performance of the company. These strategies wi&&

have ma'or impact on the future top-&ine and bottom-&ine. The industry ana&ysis

enab&es us to short&ist industries for the purpose of insurance investment. The

ne4t step is to identify the superior performers in the industry. 9ven though an

industry might be doing we&&, some companies in the industries can be in


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do&drums

S$r%$e&" "o!s'er%$o! o+ Comp%!) A!%*)ss

( trend ana&ysis of company=s market share.

(n ana&ysis of cost structure and 9% ana&ysis.

(n ana&ysis of turnover of assets, operating and production efficiencies

through ratio ana&ysis.

+everage and coverage ratio ana&ysis.

8und f&ow ana&ysis.

%rofitabi&ity ana&ysis.

( trend ana&ysis of book va&ue per share.

(n assessment of the ;ua&ity of the asset.

(n assessment of the ;ua&ity of management.


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CHAPTER-

RESEARCH DESIN

RESEARCH DESIN

.1 TITLE OF THE STUDY

A STUDY O FUNDAMENTAL ANALYSIS AND ITS IMPACT ON

INSURANCE SECTOR

. REVIE/ OF LITERATURE

1.A s$(') 'o!e 0) THE ENEVA ASSOCIATION SYSTEMIC RIS2 IN

INSURANCE3The #eneva (ssociation is the &eading internationa& insurance

Fthink tankG for strategica&&y important insurance and risk management issues.

The financia& crisis has e4posed f&aws in the supervisory system and engendered

ca&&s to further regu&ate the financia& sector. (mong the many proposa&s under

consideration or imp&ementation is the idea of app&ying more stringent

supervision and, perhaps, more onerous regu&ation to Fsystemica&&y

re&evant institutionsG. This proposa& is usua&&y conceived as app&ying to

banks. 6owever, some institutions and governments have recent&y


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suggested that a simi&ar approach be taken to insurers. This report e4amines the

performance of the insurance industry during the crisis, assesses the

app&ication of the 8:=s proposa& on systemic risk to insurance, and deve&ops

initia& recommendations to address current regu&atory gaps and strengthen

industry risk management practices.

. A s$(') 'o!e 0) Dr.B.V4%)*%5s6m. Imp%"$ o+ *o0%*7%$o!8 O9er9e:

O+ I!s(r%!"e I!'(s$res I! I!'%. Vo*(me III, N(m0er8 1,;%!(%r),


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and idiosyncratic risk factors. :ince reinsurance is important for the capacity of

insurers, we measure risk dependence among 9uropean insurers and reinsurers.

The resu&ts point to a re&ative&y &ow insurance sector wide risk. $ependence

among insurers is higher than among reinsurers.

.> STATEMENT OF THE PROBLEM

The study entit&ed G ( study on fundamenta& ana&ysis and its impact on

insurance sectorG is undertaken with an intention to study the fundamenta&s

ana&ysis on insurance sector and wi&& find the prob&ems in insurance sector and

performance of insurance sector

.@ OB;ECTIVES OF THE STUDY

To find out the factors affecting insurance industry

To study the performance of various insurance company

To study the movement of stock prices of insurance companies with

respect to present economic and government po&ices

. SCOPE OF THE STUDY

The present study is carried to know the fo&&owing aspects. The study aims to

understand the fundamenta& ana&ysis and its impact on insurance sector. This

study wi&& provide the re&evant information about the economy, industry, and

different companies in insurance sector

.? OPERATIONAL DEFINITION OF THE CONCEPT

I!s(r%!"e Prem(m

The periodic payment made on an insurance po&icy is ca&&ed premium

I!s(r%!"e Po*")

( contract of insurance describing the term coverage, premium, and deductib&es


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is ca&&ed po&icy

Pro$e"$o! po*"es

%o&ices designed to provide a benefit in the event of specified event, typica&&y a

&ump sum payment. ( common form of this design is term insurance.

I!9es$me!$ po*"es

%o&ices where the main ob'ective is to faci&itate the growth of capita& by regu&ar

or sing&e premiums. ommon forms /in the D: anyway are who&e &ife universa&

&ife and variab&e &ife po&icies.

E"o!om" A!%*)ss

9conomic ana&ysis refers to the ana&ysis of the factors or indicators of the

economy that affects the insurance market

E"o!om" !$e&r%$o!

The merging to various degrees of the economies and economic po&icies of two

or more countries in a given region. :ee a&so common market, customs union,

and free-trade area, trade creation, and trade diversion.

E"o!om" po*")

( statement of ob'ectives and the methods of achieving these ob'ectives /po&icy

instruments by government, po&itica& party, business concern, etc.

I!'(s$r) %!%*)ss

Industry ana&ysis refers to ana&ye the p&an , priorities and vu&nerabi&ity of an

industry for government regu&ation. The competitive conditions as ref&ected in

any barriers to industry a&so taken into consideration.

Comp%!) %!%*)ss

ompany ana&ysis inc&udes ana&ysis the company as potentia&ity for growth,

present performance of insurance sector

L+e I!s(r%!"e


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+ife insurance or &ife assurance is a contract between the po&icy owner and the

insurer where the insurer agrees to pay a designated beneficiary a sum of money

upon the occurrence of the insured individua&"s or individua&s" death or other

event, such as termina& i&&ness or critica& i&&ness. In return, the po&icy owner

agrees to pay a stipu&ated amount at regu&ar interva&s or in &ump sums.

. METHODOLOY

TYPES OF DATA

>n&y secondary data

SECONDARY DATA8 :econdary data refers to those data that has a&ready

been co&&ected and ana&yed by someone e&se. In other words secondary data is

the information that a&ready e4ists somewhere having been co&&ected for another

purpose.

SAMPLE SIE

( study on four companies was done. (na&yed a&& the four companies by

different methods. 9;uations areC

1.(#(3 :(+9: /sa&es of 200)Asa&es of 200J/1A*-1

2.(#(3 9%: /9ps of 200)A9ps of 200J/1A*-1

*.D339T 3(TI> urrent (ssets Aurrent +iabi&ities

@.$ebt to 9;uity Tota& $ebt /:hort Term K+ong TermA9;uity K%reference

5.Interest overage9arnings efore Interest (nd Ta4AInterest


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. LIMITATIONS OF THE STUDY

(n in depth study cou&d not be done because of time constraints

The study is &imited to the e4tent of avai&ab&e data

The findings and conc&usions made during the study might not be

app&icab&e for a &ong period of time.

.= CHAPTER SCHEME

1. INTRODUCTION

It inc&udes introduction to the study about the specific area chosen.

. RESEARCH DESIN

This chapter provides a p&an of the study, which inc&ude statement of the

prob&em, need for study, review of the previous studies, ob'ectives, definition of

concepts, scope, methodo&ogy, samp&e design, sources of data, too& and

techni;ues for data co&&ection, &imitations and an overview of chapter scheme.

>. PROFILE OF THE INDUSTRY AND COMPANIES

This chapter contains a comp&ete profi&e of the industry and companies that

is history, nature of business, product and services etc..

@. ANALYSIS AND INTERPRETATION OF THE DATA

It provides an ana&ysis of the data with re;uired interpretation with the he&p

of tab&es.

. SUMMARY OF FINDINS, CONCLUSIONS AND SUESTIONS

This chapter must start with an overview of the dissertation, summarie the

findings under each ob'ective, provide conc&usions and recommendations based

on the findings. It is to be noted that the recommendations are practica&,


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acceptab&e and comprehensive.

BIBLIORAPHY

It inc&udes the &ist of the artic&es, books, websites that are referred and usefu&

for research of the topic.

ANNEXURE

CHAPTER >

INDUSTRY PROFILE


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INSURANCE INDUSTRY

In India, insurance has a deep-rooted history. It finds mention in the

writings of 7anu /7anusmrithi, Lagnava&kya /$harma Astra and Mauti&ya

/Arthasastra . The writings ta&k in terms of poo&ing of resources that cou&d be

re-distributed in times of ca&amities such as fire, f&oods, epidemics and famine.

This was probab&y a pre-cursor to modern day insurance. (ncient Indian history

has preserved the ear&iest traces of insurance in the form of marine trade &oans

and carriers= contracts. Insurance in India has evo&ved over time heavi&y drawing

from other countries, 9ng&and in particu&ar.

1!1! saw the %'9e!$ o+ *+e !s(r%!"e 0(s!ess ! I!'% with the

estab&ishment of the >rienta& +ife Insurance ompany in a&cutta. This

ompany however fai&ed in 1!*@. In 1!2), the 7adras 9;uitab&e had begun

transacting &ife insurance business in the 7adras %residency. 1!0 saw the

enactment of the ritish Insurance (ct and in the &ast three decades of the

nineteenth century, the ombay 7utua& /1!1, >rienta& /1!@ and 9mpire of

India /1!) were started in the ombay 3esidency. This era, however, was

dominated by foreign insurance offices which did good business in India, name&y

(&bert +ife (ssurance, 3oya& Insurance, +iverpoo& and +ondon #&obe Insurance

and the Indian offices were up for hard competition from the foreign companies.

In 1)1@, the #overnment of India started pub&ishing returns of Insurance

ompanies in India. The Indian +ife (ssurance ompanies (ct, 1)12 was the

first statutory measure to regu&ate &ife business. In 1)2!, the Indian Insurance

ompanies (ct was enacted to enab&e the #overnment to co&&ect statistica&

information about both &ife and non-&ife business transacted in India by Indian

and foreign insurers inc&uding provident insurance societies. In 1)*!, with a


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view to protecting the interest of the Insurance pub&ic, the ear&ier &egis&ation was

conso&idated and amended by the Insurance (ct, 1)*! with comprehensive

provisions for effective contro& over the activities of insurers.

The Insurance (mendment (ct of 1)50 abo&ished %rincipa& (gencies.

6owever, there were a &arge number of insurance companies and the &eve& of

competition was high. There were a&so a&&egations of unfair trade practices. The

#overnment of India, therefore, decided to nationa&ie insurance business.

(n >rdinance was issued on 1)th Banuary, 1)5 nationa&iing the +ife

Insurance sector and +ife Insurance orporation came into e4istence in the same

year. The +I absorbed 15@ Indian, 1 non-Indian insurers as a&so 5 provident

societiesN2@5 Indian and foreign insurers in a&&. The +I had monopo&y ti&& the

&ate )0s when the Insurance sector was reopened to the private sector.

The 6s$or) o+ &e!er%* !s(r%!"e '%$esback to the Industria& 3evo&ution

in the west and the conse;uent growth of sea-faring trade and commerce in the

1th century. It came to India as a &egacy of ritish occupation. #enera&

Insurance in India has its roots in the estab&ishment of Triton Insurance ompany

+td., in the year 1!50 in a&cutta by the ritish. In 1)0, the Indian 7ercanti&e

Insurance +td, was set up. This was the first company to transact a&& c&asses of

genera& insurance business. 1)5 saw the formation of the #enera& Insurance

ounci&, a wing of the Insurance (ssociation of India. The #enera& Insurance

ounci& framed a code of conduct for ensuring fair conduct and sound business

practices.

In 1)!, the Insurance (ct was amended to regu&ate investments and set

minimum so&vency margins. The Tariff (dvisory ommittee was a&so set up

then.

In 1)2 with the passing of the #enera& Insurance usiness

/ationa&iation (ct, genera& insurance business was nationa&ied with effect

from 1st Banuary, 1)*. 10 insurers were ama&gamated and grouped into four

companies, name&y ationa& Insurance ompany +td., the ew India (ssurance


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ompany +td., the >rienta& Insurance ompany +td and the Dnited India

Insurance ompany +td. The #enera& Insurance orporation of India was

incorporated as a company in 1)1 and it commence business on Banuary 1sst

1)*.

This mi&&ennium has seen insurance come a fu&& circ&e in a 'ourney

e4tending to near&y 200 years. The process of re-ope!!& o+ $6e se"$or had

begun in the ear&y 1))0s and the &ast decade and more has seen it been opened up

substantia&&y. In 1))*, the #overnment set up a committee under the

chairmanship of 3 7a&hotra, former #overnor of 3I, to propose

recommendations for reforms in the insurance sector. The ob'ective was to

comp&ement the reforms initiated in the financia& sector. The committee

submitted its report in 1))@ wherein, among other things, it recommended that

the private sector be permitted to enter the insurance industry. They stated that

foreign companies be a&&owed to enter by f&oating Indian companies, preferab&y a

'oint venture with Indian partners.

A 0re+ 6s$or) o+ $6e I!s(r%!"e se"$or

The business of &ife insurance in India in its e4isting form started in India

in the year 1!1! with the estab&ishment of the >rienta& +ife Insurance ompany

in a&cutta.

Some o+ $6e mpor$%!$ m*es$o!es ! $6e *+e !s(r%!"e 0(s!ess ! I!'% %re8

1)12C The Indian +ife (ssurance ompanies (ct enacted as the first

statute to regu&ate the &ife insurance business.

1)2!C The Indian Insurance ompanies (ct enacted to enab&e the

government to co&&ect statistica& information about both &ife and non-&ife


21/99

insurance businesses.

1)*!C 9ar&ier &egis&ation conso&idated and amended to by the Insurance

(ct with the ob'ective of protecting the interests of the insuring pub&ic.

1)5C 2@5 Indian and foreign insurers and provident societies taken over

by the centra& government and nationa&ied. +I formed by an (ct of

%ar&iament, vi. +I (ct, 1)5, with a capita& contribution of 3s.5 crore

from the #overnment of India.

The #enera& insurance business in India, on the other hand, can trace its

roots to the Triton Insurance ompany +td., the first genera& insurance company

estab&ished in the year 1!50 in a&cutta by the ritish.

:ome of the important mi&estones in the genera& insurance business in India areC

1)0C The Indian 7ercanti&e Insurance +td. set up, the first company to

transact a&& c&asses of genera& insurance business.

1)5C #enera& Insurance ounci&, a wing of the Insurance (ssociation of

India, frames a code of conduct for ensuring fair conduct and sound

business practices.

1)!C The Insurance (ct amended to regu&ate investments and set

minimum so&vency margins and the Tariff (dvisory ommittee set up.

1)2C The #enera& Insurance usiness /ationa&iation (ct, 1)2

nationa&ied the genera& insurance business in India with effect from 1st

Banuary 1)*.

10 insurers ama&gamated and grouped into four companies vi. the

ationa& Insurance ompany +td., the ew India (ssurance ompany

+td., the >rienta& Insurance ompany +td. and the Dnited India

Insurance ompany +td. #I incorporated as a company.

LIFE INSURERS


22/99

P(0*" se"$or

1.+ife Insurance orporation >f India

Pr9%$e se"$or

1.a'a' (&&ian +ife Insurance ompany +imited

2. ir&a :un +ife Insurance o. +td

*. 6$8 :tandard +ife Insurance o. +td

@. III %rudentia& +ife Insurance o. +td.

5. I# Hysya +ife Insurance ompany +td.

. 7a4 ew Lork +ife Insurance o. +td

. 7et +ife India Insurance ompany +td.

!. Motak 7ahindra >&d 7utua& +ife Insurance +imited

). :I +ife Insurance o. +td

10. Tata (I# +ife Insurance ompany +imited

11. 3e&iance +ife Insurance ompany +imited.

12. (viva +ife Insurance o. India %vt. +td.

1*. :ahara India +ife Insurance o, +td.

1@. :hriram +ife Insurance o, +td.

15. harti (O( +ife Insurance ompany +td.

1. 8uture #enera&i +ife Insurance ompany +td.

1. I$I 8ortis +ife Insurance ompany +td.

1!. anara 6: >rienta& ank of ommerce +ife Insurance o. +td

1). (9#> 3e&igare +ife Insurance ompany +imited.

20. $+8 %ramerica +ife Insurance o. +td.

21. :tar Dnion $ai-ichi +ife Insurance omp. +td.

ENERAL INSURERS

P(0*" se"$or

1.ationa& Insurance ompany +imited


23/99

2.ew India (ssurance ompany +imited

*.>rienta& Insurance ompany +imited

@.Dnited India Insurance ompany +imited

Pr9%$e Se"$or

1.a'a' (&&ian #enera& Insurance o. +imited

2.III +ombard #enera& Insurance o. +td.

*.I88>-Tokio #enera& Insurance o. +td.

@.3e&iance #enera& Insurance o. +imited

5.3oya& :undaram (&&iance Insurance o. +td.

.T(T( (I# #enera& Insurance o. +imited

.94port redit #uarantee orporation

!.ho&amanda&am #enera& Insurance o. +td.

REINSURER

1.#enera& Insurance orporation of India

PRESENT SCENARIO OF INSURANCE INDUSTRY

India with about 200 mi&&ion midd&e c&ass househo&d shows a huge

untapped potentia& for p&ayers in the insurance industry. :aturation of markets in

many deve&oped economies has made the Indian market even more attractive for

g&oba& insurance ma'ors. The insurance sector in India has come to a position of

very high potentia& and competitiveness in the market. Indians, have a&ways seen

&ife insurance as a ta4 saving device, are now sudden&y turning to the private

sector that are providing them new products and variety for their choice.


24/99

onsumers remain the most important centre of the insurance sector.

(fter the entry of the foreign p&ayers the industry is seeing a &ot of competition

and thus improvement of the customer service in the industry. omputeriation

of operations and updating of techno&ogy has become imperative in the current

scenario. 8oreign p&ayers are bringing in internationa& best practices in service

through use of &atest techno&ogies

The insurance agents sti&& remain the main source through which

insurance products are so&d. The concept is very we&& estab&ished in the country

&ike India but sti&& the increasing use of other sources is imperative. (t present

the distribution channe&s that are avai&ab&e in the market are &isted be&ow.

$irect se&&ing

orporate agents

#roup se&&ing

rokers and cooperative societies

anc assurance

ustomers have tremendous choice from a &arge variety of products from

pure term /risk insurance to unit-&inked investment products. ustomers are

offered unbund&ed products with a variety of benefits as riders from which they

can choose. 7ore customers are buying products and services based on their true

needs and not 'ust traditiona& money back po&icies, which is not considered very

appropriate for &ong-term protection and savings. There is &ots of saving and

investment p&ans in the market. 6owever, there are sti&& some key new products

yet to be introduced - e.g. hea&th products.

The rura& consumer is now e4hibiting an increasing propensity for

insurance products. ( research conducted e4hibited that the rura& consumers are

wi&&ing to do&e out anything between 3s.*,500 and 3s.2,)00 as premium each


25/99

year. In the insurance the awareness &eve& for &ife insurance is the highest in rura&

India, but the consumers are a&so aware about motor, accidents and catt&e

insurance. In a study conducted by 7(3T the resu&ts showed that near&y one

third said that they had purchased some kind of insurance with the ma4imum

penetration skewed in favor of &ife insurance. The study a&so pointed out the

private companies have huge task to p&ay in creating awareness and credibi&ity

among the rura& popu&ace. The perceived benefits of buying a &ife po&icy range

from security of income bu&k return in future, daughter"s marriage, chi&dren"s

education and good return on savings, in that order, the study adds.

FEATURES OF INSURANCE INDUSTRY

Insurance %o&icy India provides the c&ients with the detai&s re;uired forthe coverage in the po&icy, date of commencement of the po&icy and their

adopting organiations. It p&ays a important ro&e in the Indian insurance sector.

The Insurance %o&icy India is regu&ated by certain acts &ike the Insurance (ct

/1)*!, the +ife Insurance orporation (ct /1)5, #enera& Insurance usiness

ationa&iation (ct /1)2, Insurance 3egu&atory and $eve&opment (uthority

I3$( (ct /1))). The insurance po&icy determines the covers against risks,

sometime opens investment options with insurance companies setting highreturns and a&so informs about the ta4 benefits &ike the +I in India. There are

two types of insurance coversC

1. +ife insurance

2. #enera& insurance


26/99

L+e !s(r%!"eE this sector dea&s with the risks and the accidents affecting the

&ife of the customer. (&ongside, this insurance po&icy a&so offers ta4 p&anning and

investment returns. There are various types of &ife Insurance %o&icy IndiaC

a. 9ndowment %o&icy

b. ?ho&e +ife %o&icy

c. Term +ife %o&icy

d. 7oney-back %o&icy

e. Boint +ife %o&icy

f. #roup Insurance %o&icy

e!er%* I!s(r%!"eE this sector covers a&most everything re&ated to property,

vehic&e, cash, househo&d goods, hea&th and a&so one"s &iabi&ity towards others.

The ma'or segments covered under genera& Insurance %o&icy India areC

a. 6ome Insurance

b. 6ea&th Insurance

c. 7otor Insurance

d. Trave& Insurance

Some o+ $6e :e**-5!o:! I!s(r%!"e Po*") I!'% %re8

So"%* Se"(r$) ro(p S"6eme a scheme covering the age group of 1!-0

years and an insurance of 3s.5000 for natura& death and of 3s.25000 on due to

accidenta& death.

S65s6% S%6)o& Yo4%!% a scheme providing an educationa& scho&arship of

3s.*00 per ;uarter per chi&d is given for a period of four years.

;%! Aro&)% Bm% Po*") a scheme for the adu&t=s up to the age of @5 years is

3s.0 and for chi&dren it is 3s.50. The &imit coverage is fi4ed at 3s.5000 per

annum.

Me'"*%m I!s(r%!"e Po*") a scheme covering the age group from 5-!0


27/99

years with a ta4 benefit of up to 3s.10,000.

;%!% S6ree Bm% Yo4%!% this is coverage of 3s.2,000 on natura& death and

3s.50,000 for accidenta& death. The premium amount is fi4ed at 3s.200 for

sing&e member.

V'es6 Y%$r% M$r% Po*") a scheme-covering medica& e4penses during the

period of overseas trave&.

B6%&)% S6ree C6*' /e*+%re Bm% Yo4%!% a scheme covering one gir& chi&d

in a fami&y up to the age of 1! whose parents age does not e4ceed 0 years, with

a premium of 3s.15 per annum.

R%4 R%4es6:%r M%6*% 2%*)%! Yo4%!% a scheme providing protection to

woman in the age group of 10 to 5 years with an insurance of 3s.25,000 and

premium 3s.15 per annum.

As6r%) Bm% Yo4%!% scheme-covering workers in case of &oss of 'obs.

%ersona& (ccident Insurance :cheme for Missan redit ard E a scheme

covering a&& the M ho&ders up to an age of 0 years. Insurance coverage

inc&udes 50,000 for accidenta& death and 25,000 for partia& disabi&ity.

T6e +(!"$o!s o+ I!s(r%!"e "%! 0e 0+(r"%$e' !$o $:o p%r$s8

1. %rimary 8unctions

2. :econdary 8unctions

*. >ther 8unctions

T6e prm%r) +(!"$o!s o+ !s(r%!"e !"*('e $6e +o**o:!&8

Pro9'e Pro$e"$o!- The primary function of insurance is to provide protectionagainst future risk, accidents and uncertainty. Insurance cannot check the

happening of the risk, but can certain&y provide for the &osses of risk. Insurance is

actua&&y a protection against economic &oss, by sharing the risk with others.

Co**e"$9e 0e%r!& o+ rs5- Insurance is a device to share the financia& &oss of


28/99

few among many others. Insurance is a mean by which few &osses are shared

among &arger number of peop&e. (&& the insured contribute the premiums towards

a fund and out of which the persons e4posed to a particu&ar risk is paid.

Assessme!$ o+ rs5 - Insurance determines the probab&e vo&ume of risk by

eva&uating various factors that give rise to risk. 3isk is the basis for determining

the premium rate a&so.

Pro9'e Cer$%!$) - Insurance is a device, which he&ps to change from

uncertainty to certainty. Insurance is device whereby the uncertain risks may be

made more certain.

T6e se"o!'%r) +(!"$o!s o+ !s(r%!"e !"*('e $6e +o**o:!&8

Pre9e!$o! o+ Losses- Insurance cautions individua&s and businessmen to adopt

suitab&e device to prevent unfortunate conse;uences of risk by observing safety

instructions< insta&&ation of automatic spark&er or a&arm systems, etc. %revention

of &osses cause &esser payment to the assured by the insurer and this wi&&

encourage for more savings by way of premium. 3educed rate of premiums

stimu&ate for more business and better protection to the insured.

Sm%** "%p$%* $o "o9er *%r&er rs5s - Insurance re&ieves the businessmen from

security investments, by paying sma&& amount of premium against &arger risks

and uncertainty.

Co!$r0($es $o:%r's $6e 'e9e*opme!$ o+ *%r&er !'(s$res - Insurance

provides deve&opment opportunity to those &arger industries having more risks in

their setting up. 9ven the financia& institutions may be prepared to give credit to

sick industria& units which have insured their assets inc&uding p&ant and

machinery.

T6e o$6er +(!"$o!s o+ !s(r%!"e !"*('e $6e +o**o:!&8

Me%!s o+ s%9!&s %!' !9es$me!$- Insurance serves as savings and investment,

insurance is a compu&sory way of savings and it restricts the unnecessary

e4penses by the insured"s 8or the purpose of avai&ing income-ta4 e4emptions


29/99

a&so, peop&e invest in insurance.

So(r"e o+ e%r!!& +ore&! e"6%!&e- Insurance is an internationa& business.

The country can earn foreign e4change by way of issue of marine insurance

po&icies and various other ways.

Rs5 Free $r%'e - Insurance promotes e4ports insurance, which makes the

foreign trade risk free with the he&p of different types of po&icies under marine

insurance cover.

DEMAND DRIVERS

Be+ore I!'epe!'e!"e

The insurance industry originated in India in the year 1!1! with the

formation of +ife Insurance orporation in a&cutta. The idea behind starting

+I was to provide insurance coverage for 9ng&ish widows and different

premium was charged for the 9ng&ish and for the Indians. In 1!0 ombay

7utua& +ife Insurance :ociety estab&ished its Insurance business and the same

premium was charged for both Indians and 9ng&ish. In 1)12 the Insurance sector

came under the purview of regu&ations when the government passed the +ife

Insurance ompanies (ct. ut it was in the year 1)*! when the government

came up with the first &egis&ation to bring the insurance sector under state

contro&.

Pos$ I!'epe!'e!"e

In 1)5, the #overnment of India nationa&ied insurance companies

bringing Indian Insurance sector under the purview of the #overnment. These

state owned Insurance companies became high&y inefficient and bureaucratic,had e4cess manpower and count&ess de&ay in sett&ement of c&aims but the nation

did not have an a&ternative. (ny effort by the government to privatie the

industry met with stiff resistance from the trade unions.

Pos$ L0er%*7%$o! Po*"es re&%r'!& I!s(r%!"e


30/99

Dnder the recommendation of 7a&hotra ommittee the Insurance

3egu&atory (nd $eve&opment (uthority was set up to monitor and contro& the

Insurance industry some of the initiatives taken by the government after

Insurance sector reforms areC

#overnment to have not more than 50 per cent stake in insurance

companies.

Insurance sector to be opened up for private companies and any number

of insurance enterprises can operate.

%rivate p&ayers with minimum paid up capita& of 3s.1 bi&&ion shou&d be

given opportunity to do business.

8oreign companies can enter Indian market through 'oint ventures with

Indian companies.

The state contro&&ed Insurance companies &ike +I and #I faced stiff

competition from private insurance companies post reforms. The monopo&y of

the nationa& Insurance companies came to an end. The private Insurance

companies were ab&e to e4p&oit the shortcomings in the state run Insurance

companies. The private insurance companies &aunched a variety of new insurance

products &ike hea&th care, pension p&ans, annuity p&ans, income protection,

market &inked products, which were we&comed by the end customers. The

business for the private sector boomed in both urban and rura& sector a&ike.

FDI Po*") Re&%r'!& I!s(r%!"e Se"$or

T69 8inance 7inister, whi&e presenting the first udget of the D%(

government, has proposed to raise the 8$I cap in three sectors. 9&aborating

upon the decision he said, FThe 7% dec&ares that 8$I wi&& continue to beencouraged and active&y sought, particu&ar&y in areas of infrastructure, high

techno&ogy and e4ports. Three sectors of the economy fu&&y meet this

description. They are te&ecommunications, civi& aviation and insurance.G The

specific proposa& for the insurance sector is to raise the 8$I cap from 2 to @)


31/99

per cent. ?e argue be&ow that this move is un'ustifiab&e on severa& grounds.

Bo'es $6%$ re&(*%$e $6e se"$or8

8or better regu&ation purpose of the insurance sector the government has

estab&ished fo&&owing bodiesrganiation /:>, the economy is e4pected to grow at .2 per cent

in 200)-10, with the industria& and the service sectors growing at !.2 and !. per

cent respective&y. India=s gross domestic product /#$% grew by per cent

during >ctober to $ecember 200), over the corresponding ;uarter of the

previous year, as per data re&eased by the :>.

The economic activities which registered significant growth in the third

;uarter of 200)-10 over the corresponding period in 200!-0) are "mining and

;uarrying" at ). per cent, "manufacturing" at 1@.* per cent, "construction" at !.

per cent, "trade, hote&s, transport and communication" at 10 per cent and

"financing, insurance, rea& estate and business services" at .! per cent.

(ccording to the &atest estimates avai&ab&e on the Inde4 of Industria& %roduction

/II%, the inde4 of mining, manufacturing and e&ectricity, registered growth rates

of ). per cent, 1@.* per cent and @ per cent, respective&y in P* of 200)-10, as

compared to the growth rates of 2 per cent, 0.5 per cent and 2.) per cent in these

industries in same period in 200!-0). The key indicators of construction sector,

name&y, cement and finished stee& registered growth rates of !.5 per cent and .

per cent, respective&y in P* of 200)-10.T6e E"o!om" s"e!%ro

8oreign institutiona& investors /8IIs were net investors of D:Q @.*

bi&&ion in e;uity and D:Q 2.0) bi&&ion in debt instruments in the month of 7arch

2010, according to the data re&eased by :ecurities and 94change oard of India

/:9I. The number of registered 8IIs was 11* as on 7arch *1, 2010 and the

tota& 8II inf&ow in e;uity during Banuary to 7arch 2010 was D:Q @.5@ bi&&ion

whi&e it was D:Q @.1 bi&&ion in debt.

(s on 7arch 2, 2010, India"s foreign e4change reserves tota&ed D:Q

2.0@ bi&&ion, an increase of D:Q [email protected] bi&&ion over the same period &ast year,

according to the 3eserve ank of India"s ?eek&y :tatistica& :upp&ement.

7oreover, India received 8$I worth D:Q 20.)2 bi&&ion during (pri&-$ecember

200), taking the cumu&ative amount of 8$I inf&ows from (ugust 1))1 to


38/99

$ecember 200) to D:Q 12.@ bi&&ion, according to the $epartment of Industria&

%o&icy and %romotion.

:i4-core infrastructure industries grew at @.5 per cent in 8ebruary 2010

against 1.) per cent during the corresponding month &ast year, primari&y due to

increased output in e&ectricity. The si4 infrastructure sectorsNcrude, petro&eum

refinery products, coa&, e&ectricity, cement and finished stee&Nthat constitute

2.! per cent in II%, recorded a growth of 5.* per cent in the period (pri&-

8ebruary 200)-10, as against 2.) per cent in the same period &ast year.

7oreover, according to &atest data from 3I, &oan disbursement by

schedu&ed commercia& banks, inc&uding regiona& rura& banks, recorded 1.0@ per

cent growth at the end of 7arch 12, 2010, on a year-on-year basis. This is above

3I"s pro'ection of 1 per cent credit growth in this financia& year.

>f the more than 200 companies from over 50 countries that form part of the

?or&d 9conomic 8orum"s #&oba& #rowth ompanies /## ommunity, India

today has the second &argest representation, with a tota& of 1! ##s. Indian

##s come from every sector, with a strong representation in information

techno&ogy and e&ectronics, retai&, consumer goods and banking.

The ## ommunity was formed to engage high-growth companieswith the potentia& to be tomorrow"s industry &eaders and drive economic and

socia& change.

INDIA DP RO/TH RATE


39/99

The #ross $omestic %roduct /#$% in India e4panded at an annua& rate

of .20 percent in the &ast ;uarter. India #ross $omestic %roduct is worth 121

bi&&ion do&&ars or 1.) of the wor&d economy, according to the ?or&d ank.

India"s diverse economy encompasses traditiona& vi&&age farming, modern

agricu&ture, handicrafts, a wide range of modern industries, and a mu&titude of

services. :ervices are the ma'or source of economic growth, accounting for more

than ha&f of India"s output with &ess than one third of its &abor force. The

economy has posted an average growth rate of more than in the decade since

1)), reducing poverty by about 10 percentage points.

RAPH [email protected]

I!'% DP &ro:$6 r%$e


40/99


41/99

I!+*%$o!

>n 7arch 1), 2010, the 3eserve bank of India raised its benchmark

reverse repurchase rate to *.5 percent, after this rate touched record &ows of

*.25. The repurchase rate was raised to 5 from @.5 as we&&, in an attempt

to curb Indian inf&ation. India=s 200)-10 9conomic :urvey 3eport suggests a

high doub&e-digit increase in food inf&ation, with signs of inf&ation spreading to

various other sectors as we&&. The $eputy #overnor of the 3eserve ank of

India, however, e4pressed his optimism in 7arch 2010 about an imminent easing

of Indian who&esa&e price inde4-based inf&ation, on the back of fa&&ing oi& and

food prices.

8or 200), Indian inf&ation stood at 11.@) L-o-L. This rate ref&ects the

genera& increase in prices, taking into account the purchasing power of the

common man. (ccording to the 9conomic :urvey 3eport for 200)-10, economic

growth dece&erated to . in 200!-0), from ) in 200-0!. The economy is

e4pected to grow by !. in 2010-11, with a return to a growth rate of ) in2011-12.

Foo' I!+*%$o! Up 1?.?1

India"s annua& food price inf&ation eased in mid-(pri&, but fue& price

inf&ation ;uickened maintaining an upside pressure on the who&esa&e price inde4

that cou&d prompt further monetary tightening by the centra& bank. The food

price inde4 rose 1.1 percent in the 12 months to (pri& 1, &ower than an annua&

rise of 1.5 percent in the previous week, government data showed on

Thursday. The fue& price inde4 rose an annua& 12.) percent, higher than the

previous week"s reading of 12.@5 percent.

?ho&esa&e price inf&ation in 7arch touched a 1-month high of ).) percent,


42/99

prompting the 3eserve ank of India /3I to raise rates in (pri& for the second

time in as many months. 3eserve ank of India #overnor $uvvuri :ubbarao said

rising prices for food, fue& and wages have made inf&ation more of a genera&ied

and demand-side prob&em. 7uch of the country"s inf&ationary pressures were

initia&&y on the supp&y-side as a resu&t of the 200) monsoon fai&ure that pushed up

food prices. ut summer monsoon is &ike&y to be norma& this year, with rainfa&&

e4pected to be )! percent of the &ong-term average, the government said &ast

8riday.

The 3I has forecast the head&ine inf&ation to ease to 5.5 percent at end-7arch

2011 on norma& monsoon.

E"6%!&e R%$e

R(peesare used in a number of countries inc&uding India and %akistan. The

3eserve ank of India /3I issues the Indian currency. The Indian rupee

e4change rate measured against si4-currency trade weighted indices. These

currencies be&ong to countries that have a strong trade re&ationship with India.

The e4change rate of the Indian rupee /or I3 is determined by market

conditions. 6owever, in order to maintain effective e4change rates, the 3I

active&y trades in the D:$AI3 urrency market. The rupee currency is notpegged to any particu&ar foreign currency at a specific e4change rate. The 3I

intervenes in the currency markets to maintain &ow vo&ati&ity in e4change rates

and remove e4cess &i;uidity from the economy.

TABLE NO-@.

94change rates /using values from Friday, April 30, 2010)

1 I3 In I3

(merican $o&&ar 0.0225@* @@.*5)

(rgentine %eso 0.0!!252 11.**11

(ustra&ian $o&&ar 0.02@1)2 @1.*21

rai&ian 3ea& 0.0*!!0) 25.22

ritish %ound 0.01@*@ .!*

u&garian +ev 0.0**112 *0.1)))


43/99

anadian $o&&ar 0.02251@ @@.1@@

hi&ean %eso 11.52! 0.0!5!1@

hinese Luan 0.15*!1 .@))*

o&ombian %eso @*.)*)2 0.0225!

roatian Muna 0.122) !.1@*52

$anish Mrone 0.12005 .)*19stonian Mroon 0.2@)05 *.@)@

9uro 0.01)*05 5).0@)

6ong Mong $o&&ar 0.1500 5.1@1

6ungarian 8orint @.51@1 0.221*

Ice&and Mrona 2.!!2@ 0.*@)0@

Israe&i ew :heke& 0.0!*)01 11.)1!

Bapanese Len 2.1*00* 0.@)@

+atvian +at 0.011) !*.@)5

+ithuanian +itas 0.05!@5! 1.10@

7a&aysian 3inggit 0.01!!! 1*.)2)

7e4ican %eso 0.2505@ *.*55

ew Rea&and $o&&ar 0.0*0)051 *2.*51

orwegian Mroner 0.1*2!12 .52)@

%akistan 3upee 1.!)@0 0.52)

3omanian +eu 0.0))22) 1@.*015

3ussian 3ub&e 0.555 1.520

:ingapore $o&&ar 0.0*0!@2@ *2.@22)

:outh (frican 3and 0.152!) .05

:outh Morean ?on 2@.)!0* 0.0@00*15

:ri +anka 3upee 2.5! 0.*!)*0!

:wedish Mrona 0.12) .1*!2:wiss 8ranc 0.02@2!01 @1.1!5)

Taiwan $o&&ar 0.0@5) 1.@1551

Thai aht 0.2)*!* 1.*102

TrinidadATobago

$o&&ar 0.1@*2@@ .)!10)

Turkish +ira 0.0**@@) 2).!)5

Heneue&an o&ivar 0.0)!*@* 10.*2)

A&r"(*$(r%* o($ p($ mo!soo! mp%"$3

The share of agricu&ture to the gross domestic product /#$% has

dropped from 25 in 2002 to 1 current&y. Let, agricu&ture contributes a huge


44/99

chunk to the #$%, making it a very important sector for India"s growth. The

performance of this sector is very crucia& to the Indian economy not on&y with

regard to #$% but a&so as a huge chunk of the Indian popu&ation is dependant on

agricu&ture. 3ainfa&& in India so far this year is 2! be&ow par and this is a ma'or

cause of concern as the impact cou&d be devastating. 7onsoon in the

northwestern region of India, the main growing area, is @0 be&ow average. If

agricu&tura& production goes down in India then the direct impact wou&d be a

dec&ine in the income of peop&e. The economy as a who&e and the #$% wi&& get

affected. This factor cou&d &ower production of food but raise the prices. 6ence,

the significance of the monsoon for the economic system cannot be under-

estimated. The monsoon can direct&y affect government savings, pub&ic

investment and foreign e4change reserves.

It is not on&y important for the monsoon to commence, but the time of

commencement is a&so important. 8or farmers, it is high&y critica& to know when

the onset wi&& occur as this affects the timing of the p&anting of crops. If rainfa&&

is deficient then more than two-thirds of the seed&ings can die. To prevent this,

the prediction systems p&ay a very important ro&e. 0 of Indian (gricu&ture is

monsoon dependent. ?ith rainfa&& this time being deficient by @5, theagricu&ture sector has been hit hard.

(&so, post-economic disaster, rura& India has become the focus for many

organiations. ut with monsoon showing no sign of rain, the rura& income is

bound to decrease, which eventua&&y wi&& affect the organiation"s p&ans and

economic conditions.

(part from this, a severe prob&em that bad monsoon is to bring is the rise in the

price of cash crops, vegetab&es and fruits. This is the most dreading conse;uence

of deficient rainfa&& as the basic needs of peop&e might have to be compromised.

This increase in the price of food wi&& cause inf&ation to go up.


45/99

E"o!om" Po*"es

(s per &atest reports from %ress Trust of India, 3eserve ank of India has

come up with a new India economic po&icy whereby it wou&d be re&a4ing its

money supp&y activities. It has a&so said that its economic po&icy of India wou&d

be successfu& to he&p this country recover fisca&&y by 2011 on&y. 6owever, there

is a pre-condition for this situation to be rea&ied. This economic po&icy in India

wou&d be ab&e to bear fruit provided other advanced economies of wor&d are ab&e

to recover from aftereffects of g&oba& financia& me&tdown.

In recent times many a Indian economic po&icy have been formu&ated

whereby three back to back economic stimu&us packages have been provided to

weaker sections of Indian economy. 6owever, such India economic po&icies have

on&y &ed to increasing of financia& deficit. (n important part of India economic

po&icy of nationa& government is bringing back confidence of business

estab&ishments in India financia& system.

(s per &atest India economic po&icy, economy wou&d be moving towards

a sing&e goods and service ta4 by doing away with differences between rates of

service ta4 and 9H(T. In interim budget for fisca&s 200)-10 service ta4es

and e4cise duties have been reduced. (ccording to this India economic po&icy a

significant amount of money wou&d be &ost as a resu&t of these ta4 benefits E

&osses are e4pected to amount to I3 2),000 crores. 7a4imum amount of &osses

to tune of I3 1@,000 crores wou&d be incurred in services ta4 se&ection.

ustoms duties sector wou&d face &osses of I3 ,00 crores and for e4cise

duties it wou&d be I3 !,500 crores.

MONETARY POLICY

3I came out with its annua& monetary po&icy for 2010-11, which was

more or &ess in &ine with market e4pectations. 3I hiked repo, reverse repo and

33 by 25 bps each. The po&icy rates are with immediate effect, whi&e the 33

hike wi&& be effective from (pri& 2@. The increase in 33 is e4pected to absorb


46/99

about 3s.12500cr from the system.

7>9T(3L 79(:D39:

1. 3epo 3ate hiked from 5.0 to 5.25 /with immediate effect.

2. 3everse 3epo 3ate hiked from *.5 to *.5 /with immediate effect.

*. ash 3eserve 3atio hiked from 5.5 to .0 /effective from (pri& 2@. (s a

resu&t of the hike in 33, 3s.12500cr /appro4. of e4cess &i;uidity wi&& be

absorbed from the system.

@. ank 3ate unchanged at .0.

5. :tatutory +i;uidity 3atio unchanged at 25.

7>9T(3L %3>B9TI>

. The pro'ection of money supp&y growth for 2010-11 is p&aced at 1.

. onsistent with this, aggregate deposits of :chedu&ed ommercia& banks

/:s are pro'ected to grow by 1!.

. The growth in non-food credit of :s is p&aced at 20.

. Introduction of a reporting p&atform for a&& secondary market transactions in

ertificate of $eposits /$s and orporate %apers /%s. 8I77$( has been re;uested to start work on deve&oping a p&atform for $s

and %s simi&ar to its e4isting p&atform for corporate bonds.

. To a&&ow banks to c&assify their investments in non :+3 bonds issued by

companies engaged in infrastructure activities and having a minimum residua&

maturity of seven years under the he&d to maturity /6T7 category

. The much awaited paper on bank &icenses for the private companies wi&& be

p&aced on 3I website by end Bu&y 2010.

. y end of Bune, the bank proposes to prepare the draft for redit $efau&t :waps

/$: introduction. (round the same time, it wi&& fina&ie >T fore4 derivatives

norms.

The hike in po&icy rates and 33 is broad&y in &ine with e4pectations.

The we&&-ba&anced measures taken by the 3I is aimed at contro&&ing inf&ation


47/99

and promoting sustainab&e growth. ut it considers tempering of &i;uidity

e;ua&&y important.

There are specu&ations of the &ending getting more e4pensive but the

system sti&& possess a &ot of &i;uidity and (pri&-Bune ;uarter is a &ean period for

credit off takes and hence the interest rates shou&d not move sharp&y on an

upward trend.

3I has given indications to act on rates again if Inf&ation wi&& not curtai&

by the current rate hike. onsumer finance &oans may rise margina&&y but it wi&&

not affect much of the growth, as demand for consumer goods is very strong and

may not be impacted by a 25 basis point hike in key po&icy rates. entra& bank

has remained cautious in increasing rates to ensure that the growth is not

hampered whi&e checking inf&ationary pressures.

@. INDUSTRY ANALYSIS

The forgoing section in this report had a perspective of overa&& 9conomy

in India. The ne4t step is to ana&ye the particu&ar industry. >nce the economic

ana&ysis is over< getting the prospects of the &ike&y trend in the economy,

ana&ying the industry wou&d be taken importance, knowing which group are

promising in the year makes possib&e better entry in to the company. There is

however, no perfect corre&ation between the economy and the industry on one

hand and of industry and companies on the other.

India has mi4ed economy, where private and pub&ic sector p&ay a comp&ementary

ro&e and promote a p&anned deve&opment. :ince from 1))1 reforms, even foreign

enterprises and 7=s given an important ro&e to p&ay in the deve&opment of the


48/99

economy.

INDIAN INSURANCE INDUSTRY

#&oba&iation is the key source, which is bringing about an Sirreversib&e

transformationS in the (sian insurance market. India and hina are

Sdynamica&&yS driving the growth of insurance markets in (sia and the out&ook

for this industry in the region is SsanguineS despite short-term uncertainties. (sia

is becoming an important growth engine for g&oba& insurers. The changing socio-

economic dynamics present attractive opportunities. (ccording to a &atest

research report from 6:, in order to be &ong-term winners, &ife insurance

companies in (sia need to diversify their income streams such that at &east 25

of earnings are sourced overseas, whi&e maintaining a dominant position in the

domestic market.

The Indian insurance market in spite of having a history covering a&most

two centuries took a turn after the estab&ishment of the +ife insurance

corporation in India in 1)5. 8rom being an open competitive market to being

nationa&ied and then back to a &ibera&ied market again, the insurance sector has

witnessed a&& aspects of contest. The Indian insurance market conventiona&&y

focused around &ife insurance unti& recent&y, a various range of other insurance

po&icies covering sectors &ike medica&, automobi&e, hea&th and other c&asses

fa&&ing under genera& insurance came up, genera&&y provided by the private

companies. The &ife insurance of India added @.1 to the #$% of the economy in

200), an immense growth since 1))), when the gates were opened for the

private company in the market.

7a'or $riving 8actors

#&oba&iation

$eregu&ation which is opening up the markets


49/99

heaper and more effective distribution channe&s

>ngoing industry conso&idation

Increment in the po&icy ho&der firms

oost in 7erger and (c;uisitions activities

hanging socio-economic dynamics

7arket offering wider margins

Dni;ue combination of sie, age profi&e and growth prospects

7a'or Issues, Trends and >pportunities

ontinuous increment in intra-(sian trade

eed for diversification in the income streams

3ise in se&&ing investment type products &ike annuities

hance to compete direct&y with financia& services companies

8ocus on paying out more in c&aims

$rastic increment in marine and cargo insurance sectors

$eve&opments in countries, who were c&ose&y regu&ated by their

government

+ack of proper agent ;ua&ity

hange in the distribution method

$ifficu&ties in bui&ding networks and brands

6indrance in e4pansion in some of the emerging markets

3isk management concerns in insurance companies

#&oba& 94pansion

Transformation in the organiationa& system to win customer &oya&ty

?eak e;uity markets

Impact of sub-prime

3egu&atory and market obstac&es in the emerging markets

L+e I!s(r%!"e


50/99

The D:Q @1-bi&&ion Indian &ife insurance industry is considered the fifth

&argest &ife insurance market, and growing at a rapid pace of *2-*@ per cent

annua&&y, according to the +ife Insurance ounci&. :ince the opening up of the

insurance sector in India, the industry has received 8$I to the tune of D:Q 525.

mi&&ion. The government is &ike&y to reintroduce the Insurance i&&, which

proposes to increase the 8$I cap in private sector insurance companies from 2

per cent to @) per cent.

The tota& number of &ife insurers registered with the Insurance 3egu&atory

$eve&opment (uthority /I3$( has gone up to 2*, with registration of the India

8irst +ife Insurance ompany +imited, a 'oint venture &ife insurance company

promoted by ank of aroda and (ndhra ank, India and +ega& #enera&

7idd&e 9ast +imited, DM. The +ife Insurance orporation /+I posted a 50 per

cent growth in new premium co&&ection in the first nine months of the 2010

fisca&, increasing its market share to 5 per cent from 5 per cent a year ago.

+I=s new premium co&&ection touched D:Q ).5! bi&&ion in the (pri&-

$ecember 200) period whi&e the combined business of the 22 private insurers

grew to D:Q 5.0 bi&&ion from the previous year, as per data co&&ated by the

Insurance 3egu&atory and $eve&opment (uthority /I3$(. >vera&& the industrygrew at 2) per cent in the (pri&-$ecember period of the fisca& year 2010.

The &ife insurance industry had ear&ier been e4pected to grow by 15 per cent in

the 2010 fisca& year and cross the D:Q [email protected] bi&&ion mark in tota& premium

income by the end of 7arch 2010, according to industry body, +ife Insurance

ounci&.

6owever, industry e4perts now be&ieve that India"s &ife insurance industry

is &ike&y to grow by around 10 per cent in 2010 over the previous year, main&y

due to increased efficiency but a&so due to e4pansion in sma&& towns and vi&&ages.

In order to support the aggressive growth in premium income in the current

financia& year, 8uture #enera&i India +ife Insurance /a 'oint venture between the

8uture #roup and the Ita&y-based #enera&i #roup has proposed to infuse an

additiona& e;uity of D:Q *2.55 mi&&ion before the end of 7arch 2010.


51/99

e!er%* I!s(r%!"e

The tota& number of genera& insurers registered with I3$( has gone up to

22, with the registration of :I #enera& Insurance ompany +imited, a 'oint

venture genera& insurance company promoted by :tate ank of India and

Insurance (ustra&ia #roup, (ustra&ia, as a genera& insurer in $ecember 200).

7oreover, +T #enera& Insurance is readying to &aunch its operations in the

ne4t three to five months.

The #ross %remium underwritten by pub&ic sector non-&ife insurers for

the (pri&-$ecember 200) period posted year-on-year growth of 11.* per cent as

compared to the year-on-year growth of .)* per cent posted by private sector

non-&ife insurers. >vera&&, the non-&ife insurance sector grew ).)5 per cent in

(pri&-$ecember 200), compared to the corresponding period &ast year.

(ccording to I3$( data, out of the D:Q 5.@ bi&&ion premium underwritten by

the industry during the (pri&-$ecember 200) period, D:Q *.2@ bi&&ion came

from the four pub&ic sector companies as compared to D:Q 2.)1 bi&&ion during

the same period in 200!.

7oreover, in the 2010-11 budget, 8inance 7inister, 7r. %ranab7ukher'ee, has decided to ro&& back the government=s decision to ta4 the

unrea&ied gains of non-&ife insurance companies. FThe appreciation in the va&ue

of investments, being in the nature of unrea&ied gain is not taken into account

for determining profit or &oss of non-&ife insurance business as per the I3$(

regu&ations. It is, therefore, proposed that the unrea&ied gains due to

appreciation in the va&ue of investments wi&& not be inc&uded in the tota& income,G

according to the budget documents.

(ccording to data from the I3$( /:ummary 3eports of 7otor $ata of

%ub&ic and %rivate :ector Insurers - 200!-0), in 200!-0), near&y *0 mi&&ion

vehic&es were registered and a tota& premium worth D:Q 2.0* bi&&ion was

co&&ected.


52/99

Pro4e"$ I!s(r%!"e

Insurance companies are a&so witnessing increasing demand for pro'ect

insurance in the &ast few months. orporate are beginning to demand pro'ect

insurance across sectors such as power generation with the cover beginning right

from the start of the pro'ect ti&& it is dec&ared ready for commercia& use. :ome of

the big pro'ects a&so take cover for financia& &oss arising out of de&ay in

comp&etion.

Industry p&ayers estimate that premiums co&&ected from pro'ect insurance wi&&

be around D:Q 21.2 mi&&ion for the industry as a who&e and is e4pected to

increase significant&y.

>rienta& Insurance ompany +td wi&& be offering comprehensive pro'ect

insurance for the Tata %ower %ro'ect at 7undra in #u'arat.

He%*$6 I!s(r%!"e

The hea&th insurance market stood at around D:Q 1.5 bi&&ion in 200!-0) and

is e4pected to grow to D:Q ) bi&&ion by 201-1. ?hi&e hea&th insurance po&icies

are most&y provided by genera& insurance companies, &ife insurers contribute

about five per cent to the overa&& hea&th insurance business.

(po&&o $MH 6ea&th Insurance has renamed itse&f (po&&o 7unich 6ea&thInsurance as a part of its five-year strategic p&an to gain a five per cent

market share. (po&&o 7unich is a 'oint venture between (sia=s &argest

integrated hea&thcare provider, The (po&&o 6ospita&s #roup, and

#ermany-based 7unich 3e"s segment, 7unich 6ea&th.

7a4 India is p&anning to invest D:Q @*.25 mi&&ion in its hea&th insurance

'oint venture /7a4 upa and wi&& &aunch a product over the BanuaryE

Bune 2010 period.

:tar 6ea&th and (&&ied Insurance e4pects to invest D:Q *!.) mi&&ion

during the current financia& year to grow its hea&th insurance business,

taking the tota& invested capita& to D:Q mi&&ion.

D:-based hea&th insurer I#( is &ooking at entering the Indian market.

Re!s(r%!"e


53/99

3einsurance is a contract between the insurance company /insurer and a

third party /re-insurer, wherein the &atter wi&& protect the former by paying

&osses sustained by it under the origina& contract of insurance.

3e-insurers from +ondon, as we&& as other parts of 9urope, see significant

potentia& in the re-insurance market in India. Top four g&oba& re-insurers, +&oyds,

:wiss 3e, 7unich 3e and erkshire 6athaway are amongst those eyeing India.

B%!"%sss(r%!"e

%rivate insurers have adopted bancassurance in a much bigger way than

the state-owned +ife Insurance orporation /+I in the recent years.

ancassurance is distribution of insurance products through a bank"s network.

In 200)-10, private insurers forked out D:Q @@.@ mi&&ion as commission for

banassurance, whi&e the payout by +I for this distribution mode& was D:Q

25,)@!.

I!9es$me!$ Po*")

The 8$I &imit in the insurance space for foreign p&ayers is capped at 2

per centNpermissib&e under the automatic route sub'ect to a &icence from

the officia& regu&ator, I3$(Nbut the government is p&anning to raise it to

@) per cent and a bi&& to give effect to the proposa& is pending in the 3a'ya:abha.

I3$( has stipu&ated that the mandatory ceding by every genera& insurer

in the country to the nationa& reinsurer E #enera& Insurance orporation

/#I, wou&d continue to remain at 10 per cent as under current

regu&ations.

I3$( has a&so a&&owed insurance companies to offer "6ea&th p&us +ife

ombi %roduct", a po&icy that wou&d provide &ife cover a&ong with hea&th

insurance to subscribers.

%ension 8und 3egu&atory and $eve&opment (uthority /%83$( wou&d

&aunch a &ow-cost pension scheme on (pri& 1, 2010, to provide socia&

security cover to economica&&y weaker sections &ike rickshaw pu&&ers,

barbers and dai&y-wage &abourers.


54/99

T6e Ro%' A6e%'

:aturation of insurance markets in many deve&oped economies has made the

Indian market more attractive for internationa& insurance p&ayers, according to

"ooming Insurance 7arket in India /200!-2011G. 8urther, according to the

report,

Tota& &ife insurance premium in India is pro'ected to grow D:Q 2

bi&&ion by 2010-11

Tota& non-&ife insurance premium is e4pected to increase at a compound

annua& growth rate /(#3 of 25 per cent for the period spanning from

200!-0) to 2010-11

The home insurance segment is set to achieve a 100 per cent growth as

financia& institutions have made home insurance ob&igatory for housing

&oan approva&s

In the ne4t three years, hea&th insurance is poised to become the second

&argest business for non-&ife insurers after motor insurance

?ith a huge popu&ation base and &arge untapped market, insurance

industry is a big opportunity area in India for nationa& as we&& as foreign

investors. India is the fifth &argest &ife insurance market in the emerging

insurance economies g&oba&&y and is growing at *2-*@ annua&&y. This

impressive growth in the market has been driven by &ibera&iation, with new

p&ayers significant&y enhancing product awareness and promoting consumer

education and information. The strong growth potentia& of the country has a&so

made internationa& p&ayers to &ook at the Indian insurance market. 7oreover,

saturation of insurance markets in many deve&oped economies has made the

Indian market more attractive for internationa& insurance p&ayers, according to

Sooming Insurance 7arket in India /200!-2011S.

2e) P*%)ers

The ma'or p&ayers discussed in the report inc&ude +I, a'a' (&&ian and 6$8


55/99

:tandard under &ife insurance segments, and ew India, Dnited India and III

+ombard under non-&ife insurance segments.

Por$ers F9e For"e Mo'e* I! I!s(r%!"e Se"$or

1. T6re%$ o+ Ne: E!$r%!$s. The average entrepreneur can"t come a&ong and

start a &arge insurance company. The threat of new entrants &ies within the

insurance industry itse&f. :ome companies have carved out niche areas in

which they underwrite insurance. These insurance companies are fearfu&

of being s;ueeed out by the big p&ayers. (nother threat for many

insurance companies is other financia& services companies entering the

market. ?hat wou&d it take for a bank or investment bank to start offering

insurance productsU In some countries, on&y regu&ations that prevent

banks and other financia& firms from entering the industry. If those

barriers were ever broken down, &ike they were in the D.:. with the

#ramm-+each-&i&ey (ct of 1))), you can be sure that the f&oodgates

wi&& open.

2. Po:er o+ S(pp*ers. The supp&iers of capita& might not pose a big threat,

but the threat of supp&iers &uring away human capita& does. If a ta&ented

insurance underwriter is working for a sma&&er insurance company /or

one in a niche industry, there is the chance that person wi&& be enticed

away by &arger companies &ooking to move into a particu&ar market.

*. Po:er o+ B()ers. The i

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31099703 Fundamental Analysis and Its Impact on Insurance Sector

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