Submitted to Prof N K GUPTA

Sultan Khan Siddiqui Faizan

REGULATIONS, REFORMS, CHALLENGES, M & A AND OPENING OF INSURANCE SECTOR IN INDIA FDI IN INSURANCE

Regulations In The Insurance Sector

Ample amount of policies enforce in the world life insurance is the booming sector of the Indian Economy.

Business is growing at a pace of 15-20% annually.

People do not subscribe to the policies because of week social status & low security of income during the old age. The two legislations govern the sector, Insurance Act, 1938 & IRDA Act, 1999. Insurance regulation formally began in India with the passing of the Life Insurance Companies Act of 1912 and the provident fund Act of 1912. Open market Nationalization Liberalized market. By 1938 there were 176 insurance companies. The Government of India in 1956, brought together over 240 private life insurers and provident societies under one nationalised monopoly corporation and Life Insurance Corporation (LIC) was born.

Milestones In The Insurance Sector

1912- The Indian Life Assurance Companies Act enacted.

1928-The Indian Insurance Companies Act enacted.

1938-Earlier legislation consolidated and amended to by the Insurance Act. 1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up.

1972: The general insurance business in India nationalised through The General Insurance Business (Nationalisation) Act, 1972 with effect from 1st January 1973.

Reforms In The Insurance Sector

In 1993, Malhotra Committee- headed by former Finance Secretary and RBI Governor R.N. Malhotra- was formed to evaluate the Indian insurance industry and recommend its future direction. It was aimed at creating a strong, competitive & efficient financial sector keeping in mind the structural changes currently we are undergoing. In 1994, the committee submitted the report and some of the key recommendations included: Structure Competition Regulatory Body Investments Customer Service

The Government of India liberalized the insurance sector in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership.

There is a 26 percent equity cap for foreign partners in an insurance company. There is a proposal to increase this limit to 49 percent.
Opening of the sector will lead to greater spread & Deeping of insurance in India. Insurance companies retain only a part of the risk (less than 10 per cent) assumed by them, which can be safely borne from their own funds. The balance risk is re-insured with other insurers. In effect, therefore, re-insurance is insurer's insurance. It forms the backbone of the insurance business.

The LI market of India is underdeveloped that has only tapped the state owned LIC till the entry of private Insurers.
The penetration of life insurance products was 19 percent of the total 400 million of the insurable population.

Innovative products, smart marketing and aggressive distribution- Present Mantra of Insurance sector.
Insurance laws and regulations in India takes care of all matters related to various insurance companies in the country.

Challenges In The Insurance Sector

The increased growth in the Indian middle income group has posed incremental growthin the insurance sector in India.

India's insurance sector accounted for 4.1 per cent of GDP in 2006-07, up from 1.2 per cent in 1999-2000, far ahead of China where insurance accounts for just 1.7 per cent of the GDP and even the US where insurance penetration stands at 4 per cent of the GDP.

Indians are now setting aside a larger chunk of their income on life insurance when measured as a percentage of GDP.

They are ready to pay EMI for their insurance because they forsee a secured future ahead.

The industry's investment in the equity market stood at US$ 38.1 billion and the assets under management were at US$ 152.6 billion as on March 31, 2007.

Indian insurance companies recorded a 19.9 per cent growth in premium in dollar terms (adjusted for inflation) in 2006-07, compared to the world market growth rate of 2.9 per cent.

Life insurance penetration in India from 1% in 90-91 to 3% 05-06 to 8% 08-09.

Increased number of working women has led to demand for life insurance policies which in turn has helped a women in micro-entrepreneurship initiative (distribution of insurance products).
The domestic insurance industry in India is estimated to be around US$ 60.5 billion by 2010, of which US$ 35 billion will come from rural and semi-urban areas.

FDI IN INSURANCE
FDI up to 26% in the Insurance sector is allowed on the automatic route subject to obtaining licence from Insurance Regulatory & Development Authority (IRDA). Balance 74% being funded by Indian promoters entities. The limit includes both direct & indirect investments. Indian Govt. supported an increase in the FDI limit which calls for the change in the insurance Act.

Union budget of 2005 proposed the ceiling limit to 49 %.

Under the Act the insurance companies can opt for IPO after completion of 10 years of operations. Keen to enter growing insurance sector, US billionaire Warren Buffett, who is here mainly to promote philanthropy, today wondered if India would raise the FDI limit in the sector to 49%.

The Insurance Laws (Amendment) Bill, 2008 is pending in Parliament. The Bill, when enacted, would allow raising the FDI cap for the industry to 49%.

OPENING OF INSURANCE SECTOR IN INDIA

Since opening up of the insurance sector in 1999, foreign investments of Rs. 8.7 billion have poured into the Indian market and 21 private companies have been granted licenses. Innovative products, smart marketing, and aggressive distribution have enabled fledgling private insurance companies to sign up Indian customers faster than anyone expected. life insurance as a tax saving device the existing rule says that a foreign partner can hold 26% equity in an insurance company, a proposal to increase this limit to 49% is pending with the government. India is the fifth largest life insurance market in the emerging insurance economies globally and is growing at 32-34% annually.

Following is the list of all life insurance company granted permission by IRDA. 1. Bajaj Allianz Life Insurance Company Limited 2. Birla Sun Life Insurance Co. Ltd 3. HDFC Standard Life Insurance Co. Ltd 4. ICICI Prudential Life Insurance Co. Ltd. 5. ING Vysya Life Insurance Company Ltd. 6. Life Insurance Corporation of India 7. Max New York Life Insurance Co. Ltd 8. Met Life India Insurance Company Ltd. 9. Kotak Mahindra Old Mutual Life Insurance Limited 10. SBI Life Insurance Co. Ltd 11. Tata AIG Life Insurance Company Limited 12. Reliance Life Insurance Company Limited. 13. Aviva Life Insurance Co. India Pvt. Ltd. 14. Sahara India Life Insurance Co, Ltd. 15. Shriram Life Insurance Co, Ltd. 16. Bharti AXA Life Insurance Company Ltd. 17. Future Generali Life Insurance Company Ltd. 18. IDBI Fortis Life Insurance Company Ltd. 19. Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd 20. AEGON Religare Life Insurance Company Limited. 21. DLF Pramerica Life Insurance Co. Ltd. 22. Star Union Dai-ichi Life Insurance Comp. Ltd.