india market life insurance update · copyright © 2015 towers watson. all rights reserved....

Copyright © 2015 Towers Watson. All rights reserved. towerswatson.com 1

Introduction We are pleased to release our 61st quarterly newsletter on the life

insurance industry in India, covering developments during

September to November 2015.

As per data released by the Insurance Regulatory and

Development Authority of India (IRDAI), the life insurance

industry collected weighted new business premium of INR236

billion over the first two quarters of FY2015-16, a year-on-year

growth of 3.3%. While the private life insurance sector witnessed

a double digit growth of 20.2% in its weighted new business

premium collections, the overall industry growth was pulled down

by a fall of 8.9% witnessed by the state-owned Life Insurance

Corporation of India (LIC) in the same period. Single premium

sales rose for both private players and LIC which were driven by

the group single premium segment recording a growth of 59.6%

and 42.9%, respectively.

Many foreign partners in life insurance joint ventures in India are

at varying stages of increasing their respective stakes. Bharti

AXA Life is the first insurer to have received the regulator’s

approval for increasing AXA’s stake from 26% to 49% in the joint

venture.

Following the Insurance Laws (Amendment) Act 2015, the

insurance regulator has issued a number of new regulations,

exposure drafts and guidelines. Publication of recommendations

of the committee that examined extant life insurance regulations

and subsequent release of exposure draft by the IRDAI on

Assets, Liability and Solvency Margin (ALSM) of life insurance

business and guidelines on ‘Indian Owned and Controlled’ are

some of the significant ones.

In the reporting period, two-fifths of new product launches were

unit-linked products, which are in demand due to good returns in

unit-linked funds.

We provide an overview on these and other market

developments in this edition of the newsletter. We hope you

continue to find the newsletter interesting and informative and

look forward to receiving your feedback.

Towers Watson – Risk Consulting & Software, India

In this issue Industry statistics Industry new business performance

Financial assets of household sector in India

Market update Stake transfer to foreign players

Company news

Q2 Financial results FY2015-16

Embedded Value (EV) disclosures by private life insurers

Appointments and key role changes

Update on social security schemes

Regulatory update IRDAI (ALSM of Life Insurance Business)

Regulations, 2015

IRDAI (Other Forms of Capital) Regulations, 2015

IRDAI (Minimum Limits for Annuities and other Benefits) Regulations, 2015

The Insurance Laws (Amendment) Act 2015 - Guidelines on Indian Owned and Controlled

Guidelines on remuneration of Chief Executive Officer (CEO)/ Whole-time Director (WTD)/ Managing Director (MD) of Insurers

Anti-Money Laundering (AML)/Counter-financing of Terrorism (CFT) Guidelines

IRDAI (Issuance of Capital by Indian Insurance Companies transacting Life Insurance Business) Regulations, 2015

IRDAI (Registration of Corporate Agents) Regulations, 2015

IRDAI (Preparation of Financial Statements and Auditors’ Report of Insurers) Regulations, 2015

IRDAI (Obligations of Insurers to Rural and Social Sectors) Regulations, 2015

Others

Distribution update Growth in new business premium income by

channel during April to September 2015: New business momentum driven by bank-led distribution models

Products update Recent product launches

Contact details

India | Issue 61 | December 2015

India Market Life Insurance Update


Industry statistics “Private insurers continued to witness growth in new business, registering a year-on-year growth of 20.2%

in weighted new business premium collections in the period April to September 2015. At the same time, the

LIC recorded a decline of 8.9% in weighted new business premium collections, resulting in an overall

industry growth of 3.3%. Whilst LIC witnessed a decline in weighted new business premiums, it

demonstrated a growth of 9.3% in total new business premium collections owing to its sales weighted

heavily towards single premium business.”

Industry new business performance

Source: IRDAI

As per statistics released by the IRDAI, life insurance industry in

India collected weighted new business premiums of INR236

billion in the first half of FY2015-16, representing a modest

growth of 3.3% over the same period in FY2014-15. Weighted

new business premiums are calculated as 100% of regular

premium and 10% of single premium.

State-owned LIC witnessed a fall of 8.9% in its weighted new

business premium collections leading to a decrease in market

share from 58.3% to 51.4%. LIC’s weighted individual and

group business declined by 11.1% and 3.2%, respectively.

Private insurers have, however, continued with their buoyant

performance over the first half of FY2015-16 recording a growth

of 20.2%, increasing their market share to 48.6%.

Both private players as well as LIC have increased focused on

group single premium sales, evident by a strong year on year

growth of 59.6% for private players and 42.9% for LIC during

the half year.

ICICI Prudential Life further strengthened its position as the

market leader amongst private insurers, with a rise in its market

share from 7.8% to 9.5%, year-on-year, owing to a strong

growth of 24.7% in weighted new business collections. Except

for Reliance Life and Bajaj Allianz Life, all of the top 10

private insurers have recorded a positive growth in their

weighted new business premium collections.

SBI Life has registered a substantial growth of 59.9% in its

weighted new business premium collections. Kotak Life, Star

Union Dai-ichi Life, Tata AIA Life, Shriram Life and Future

Generali Life have also witnessed significant surge in their

weighted new business collections in excess of 80% over the

previous year. Shriram Life has reportedly attributed its growth

to focus on distribution through micro-finance institutions.

As the sector shows signs of recovery and stability, industry

experts and analysts expect the growth momentum to continue

over the long term. Credit Suisse has forecast that the industry

shall remain relatively flat over the short term as the industry

stabilises, however it remains poised to grow by 14.6% per

annum over the next 10 year period. A marginal decline over

the short term horizon is expected due to relatively unstable

regulatory regime. Press statements suggest general growth

expectations in the industry for FY2015-16 as LIC and HDFC

Life have stated expected business growth of 10-20%, while

Kotak Life is targeting growth in excess of 20%. Insurers with

a smaller base such as Edelweiss Tokio Life and DHFL

Pramerica Life have stated targets of up to 40-50%.

0 5 10 15 20 25

Others

Star Union Dai-ichi Life

PNB MetLife

Bajaj Allianz Life

Kotak Life

Max Life

Reliance Life

Birla Sun Life

HDFC Life

SBI Life

ICICI Prudential Life

Weighted new business premium collections of private life insurers (in INR billion)

April to September 2014 April to September 2015

41.7%

48.6%

Comparison of relative market shares of private life insurers in April to September 2015 and

April to September 2014

0 40 80 120 160

Total private players

LIC

Weighted new business premium collections in April to September 2015 and April to

September 2014(in Rs billion)

April to September 2014 April to September 2015

Q2 FY2015-16

Q2 FY2014-15

+20.2% YoY growth

-8.9% YoY decline


Financial assets of the household sector in India

“Life Insurance, as a part of the total household savings in India, has stabilised after facing a decline in 2010

owing to regulatory reforms. A comparison with similar statistics for select developed countries, like the

USA, the UK and France, indicate similar proportions of household savings invested in insurance.”

The following chart represents trend in the proportion and growth of life insurance savings as part of the household sector financial

assets in India. The analysis spans over the past 15 years since the privatisation of insurance sector in India. The trend line chart

represents the year on year growth in life insurance savings; and the column graph represents life insurance as part of the total

household financial assets.

Source: RBI statistics

Life insurance accounts for 19.0% of the total household

financial assets in India of INR12,356 billion for FY2014-15. The

Banking sector holds the largest share of these assets with

46.9%, while pension funds contribute 16.3%. The proportion of

life insurance peaked in FY2009-10 with 26%, as a result of

rapid growth in preceding years and better penetration with

opening up of the sector to private insurers, followed by a

relative decline in the following years. Similarly, year-on-year

growth in life insurance savings reached a peak in FY2009-10

followed by a sharp decline and a rise again in the past few

years. During the period of global economic crisis after FY2007-

08, life insurance witnessed a rise in its share from 15.0% in

2006-07 to 22.0% in FY2007-08, while savings in banking sector

dipped from 56.1% to 50.4%.

The following graphs show a comparison of life insurance and pension funds, as a component of household financial assets of

India with developed economies like the USA, the UK and France. Growth is calculated as compounded annual growth rate

(CAGR).

Source: Global Investment Research Report, Goldman Sachs Notes: 2004 has been used as the base year for 2006; latest available data for the USA is as of 2013. *Years on the x-axis represent calendar years, except for India where year represents financial year (where for example, 2013 represents FY2013-14).

The graphs indicate that the USA, France and India currently

exhibit a similar proportion of insurance (life insurance and

pension fund investments) out of the total household financial

assets, i.e. around 35%-40%, while the UK holds a relatively

higher proportion of insurance with 61.3%. Analysis of growth in

insurance savings indicates that France, the USA and India

have followed a similar trend over the period considered, with

India showing more volatility compared to others. It is

noteworthy that even though the proportion of household

financial assets invested in insurance funds is similar in India to

these countries, the overall insurance penetration remains low in

India.

14% 14% 16% 13% 15% 14%15%

22%21%

26% 19%21% 18%

16% 19%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

FY00-01 FY01-02 FY02-03 FY03-04 FY04-05 FY05-06 FY06-07 FY07-08 FY08-09 FY09-10 FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Ye

ar

on

ye

ar

gro

wth

Ho

use

ho

ld s

ecto

r fin

an

cia

l asse

ts(in

IN

R b

illio

n)

Household sector - financial assets

Life insurance Others Life insurance - YoY growth

-10%

-5%

0%

5%

10%

15%

20%

25%

2006 2008 2010 2012 2013

Growth in life insurance and pensions

France UK USA India*

61.3%

38.5%35.2% 34.2%

0%

10%

20%

30%

40%

50%

60%

70%

UK France India USA

Proportion of life insurance and pensions in household financial assets in 2014


Source: Towers Watson analysis of company disclosures and press releases

Notes: 1. As reported in the media or calculated as implied valuation divided by most recent available EV disclosure 2. Outstanding # shares is the total number of shares of the insurance company from 30 September 2015 public disclosures

Market update “Following increase in the FDI limit in the Indian insurance sector to 49%, many foreign insurers have come

further along in the process of increasing their stake in their existing joint ventures. However, the

requirement of fulfilment of the recently released ‘management control’ guidelines and negotiations between

partners to reach a mutually agreeable valuation has delayed the process for some insurers.”

Stake transfers to foreign partners

After nearly eight months since the passage of the Insurance

Laws (Amendment) Act, which raised the FDI limit in the

insurance sector to 49%, only one foreign insurer has so far

received regulatory approval for a stake hike in its life

insurance joint venture. Meanwhile, most life insurers have

expressed public interest in increasing their respective foreign

partners’ share in the joint venture and are at varying stages of

this process. The completion of the stake transfer for some of

these life insurers has been held up due to clarity sought

regarding management control from the regulator.

Bharti AXA Life, which was previously asked by the IRDAI to

rework its shareholding pattern in accordance with the

clarification on management control guidelines released by the

regulator, has now received the regulator’s nod and has

announced that AXA shall increase its stake from 26% to 49%

in the joint venture. HDFC Life has applied to the Foreign

Investment Promotion Board (FIPB) for approval for Standard

Life’s stake hike to 35% in the joint venture and is also working

to meet the regulatory guidelines. The details of this

transaction were covered in our India Market Life Insurance

Update, Edition 60. Following this transaction, the HDFC Life

has indicated intentions of launching an Initial Public Offering

(IPO) by mid-2016.

Aegon Life has obtained approval from the FIPB to increase

the stake of Aegon to 49% in the joint venture. This proposal

had previously been deferred by the FIPB. Aviva Life has

obtained approval from Competition Commission of India

(CCI) to increase the stake of its foreign partner Aviva

from 26% to 49%.

Media reports suggest that Nippon Life is in an advanced

stage of discussions to raise its stake from 26% to 49% in

Reliance Life. The deal is subject to regulatory approvals and

is expected to be completed within the current financial year.

The joint venture will be subsequently renamed to Reliance

Nippon Life Insurance. Sun Life Financial has stated that it

will increase its stake from 26% to 49% in its joint venture -

Birla Sun Life. The transaction is expected to close by the

end of the current financial year. SBI Life has also begun the

process to increase the stake of BNP Paribas from 26% to

36% and the joint venture partners expect to reach an

agreement on the valuation of SBI Life over the next couple of

months. Star Union Dai-ichi Life and DHFL Pramerica Life

are amongst the other insurers who have reportedly made

progress in their joint venture negotiations and are close to

increasing the shareholding of their respective foreign

partners- Dai-ichi Life and Prudential Financial Inc. to 44% and

49%, respectively. In addition to this, Max India is reportedly

in talks with four private equity firms for sale of a 22% stake in

Max Life such that the combined stake held by the private

equity investors and the existing foreign partner Mitsui

Sumitomo in the joint venture would increase to nearly 49%.

The chart presented below summarises the current state-of-

play for various life insurers in their respective stake transfer

process at the time of releasing this newsletter, based on

information available in the public domain. Key transaction

figures, where available have also been included.

https://www.towerswatson.com/en-IN/Insights/Newsletters/Asia-Pacific/india-market-life-insurance/2015/60-India-Market-Life-Insurance-Update-Sept-2015



Company news

Aegon Religare Life Insurance has been renamed to Aegon

Life Insurance after the exit of Religare Enterprises from the

joint venture. Religare Enterprises exited the life insurance

company by selling its 44 per cent stake to partner Bennett,

Coleman and Company Ltd (BCCL) for INR9.7 billion.

ICICI Bank has reportedly agreed to sell a 6% stake in ICICI

Prudential Life in two separate deals. 4% stake will be sold

to Premji Invest, an investment company of Azim Premji, and

2% stake will be sold to Compassvale Investments Pte Ltd, an

arm of Singapore government-owned Temasek Holdings.

This will reduce the shareholding of ICICI Bank in the joint

venture to approximately 68% while the foreign partner

Prudential Inc will maintain its stake of 26%. The reported

total transaction value of the two deals is INR20 billion, which

put the valuation of the company at INR325 billion with an

implied EV multiple of 2.4x.

India First Life has received a capital infusion of INR1.5

billion from its three promoters – Bank of Baroda, Andhra

Bank and Legal & General, in line with their existing

shareholding pattern of 44%, 30% and 26%, respectively.

Hence, the total share capital of the firm has risen to INR6.25

billion. The additional capital would be primarily used for

technology and new business growth.

The IRDAI has reportedly granted permission to the UK-based

reinsurer Lloyd’s to set up its branch office in India. The

modalities of approval were announced as an exposure draft

by the IRDAI which would also serve as a basis for other

applicants in future.

Following key regulatory reforms, various life insurance

companies are looking to reorient their strategic direction and

are investing in devising better customer value proposition,

better risk management processes and technology adoption to

reduce cost. In particular, the firms are looking to expand their

growth with the help of digitisation, data analytics, and other

technological advancements. As per press reports, the Indian

insurance industry is expected to spend INR141 billion on IT

services and products in 2016, a 9.6% increase over 2015.

Credit Information company Experian India, whose presence

until now had primarily been within the banking industry, has

been selected by Indian life insurance companies to build a

data repository and fraud monitoring framework. It will collect

data from all life insurers and conduct micro segment scrutiny

of location segments and demographics where fraud instances

are high.

Q2 Financial results FY2015-16

19 private players have made their financial results available*

at the end of Q2 FY2015-16. Twelve amongst these have

reported a profit over the first six months of the current

financial year. Out of these, only 4 have witnessed a positive

year-on-year growth in their profit after tax compared to the

end of Q2 FY2014-15. These are Bajaj Allianz Life, DHFL

Pramerica Life, Kotak Life and ICICI Prudential Life. Bajaj

Allianz Life is the only insurer to have observed a growth of

more than 100% in its profit after tax from INR2,179 million

from the corresponding period last year.

ICICI Prudential Life has reported the highest absolute profits

of INR8,118 million in the period under study, followed by

Bajaj Allianz Life with a net profit of INR4,566 million.

On the other hand, Aegon Life has witnessed a year-on-year

increase in its losses from INR268 million to INR539 million.

Other insurers who have witnessed a year-on-year increase in

their losses include Edelweiss Tokio and Star Union Dai-ichi

Life.

India First Life, which reported its maiden profit in FY2014-15

followed by losses in Q1 FY2015-16 has continued to report a

loss of INR102 million at the end of Q2 FY2015-16.

The total profit after tax for private insurers has fallen by 9%

from INR26,709 million over the first six months of FY2014-15

to INR24,296 million in the corresponding period of FY2015-

16.

ICICI Prudential Life and Max Life have declared interim

dividends of INR3,007 million and INR1,823 million

respectively for the half of FY2015-16.

Source: Towers Watson analysis using public disclosures data.

*Figures for Aviva Life, Sahara Life, Bharti AXA Life and Canara HSBC OBC

Life are not available as at September 2015


Embedded Value (EV) disclosures by private life insurers

Although only a limited number of life insurers currently disclose their EV, there has been a gradual increase in the number of

companies disclosing EV as well as the frequency of disclosures, thus signalling greater acceptability. Life insurance companies in

India who have disclosed their EV as at the end of FY2014-15 include Bajaj Allianz Life, Birla Sun Life and ICICI Prudential Life

while others who have provided their EV as at 30 September 2015 include Exide Life, HDFC Life and Max Life. The most recent

information available for these life insurance companies, is summarised below:

Exide Life HDFC Life Max Life Bajaj Allianz Birla Sun Life ICICI Prudential

Reported as at 30 September 30 September 30 September 31 March 31 March 31 March

Reported EV

INR 16.58 billion

INR 95.5 billion

INR 53.63 billion

INR 93.02 billion

INR 32.6 billion

INR 137.21 billion

Capital*

INR 17.50 billion

INR 21.60 billion

INR 19.87 billion

INR 12.11 billion

INR 21.01 billion

INR 48.16 billion

EV / Capital ratio 0.9 4.4 2.7 7.7 1.6 2.8

Reported new business margin

(pre expense-overruns)

not disclosed 22.5% 20.2% 18.1% 14.1% 13.6%

Methodology used

~ MCEV ~ MCEV ~ MCEV ~ IEV not disclosed ~ IEV

Source: Towers Watson analysis of company disclosures and press releases

Notes: *Capital presented above includes paid up share capital and share premium account as per Company disclosures


Appointments and key role changes

Aviva Life has appointed Anjali Malhotra as Chief Customer,

Marketing and Digital Officer.

Jyoti Vaswani has succeeded Nirarkar Pradhan as the Chief

Investment Officer (CIO) of Future Generali Life. She was

previously working with Aviva Life as CIO and Director - Fund

Management. Dana Yussupova has been appointed as

Senior Vice President – Internal Audit at Future Generali Life.

Rushabh Gandhi has replaced Mohit Rochlani as the Chief

Marketing Officer (CMO) of India First Life. Karni Arha, Chief

Financial Officer (CFO) and Ranjan Dhawan, Chairman -

Board of Directors have resigned from their roles at the

company.

Bharat Kannan has been appointed as the Chief Distribution

Officer of PNB MetLife for Asia. He had joined the company

in 2005 as the head of Employee Benefits for Asia.

R Radhakrishnan has been appointed as the CMO of Shriram

Life. He is succeeding Narendra Kulkarni.

Yuichiro Abe has taken the role of Chief Risk Officer (CRO) at

Star Union Dai-ichi Life. Akira Yamashita, who was earlier

managing this role, has now been appointed as the Head -

Financial Planning and Budget Control at the same company.

Adit Trivedi has been appointed as the CRO of Tata AIA Life.

Update on social security schemes

The three social security schemes - Pradhan Mantri Jeevan

Jyoti Beema Yojana (PMJJBY), Atal Pension Yojana and

Pradhan Mantri Suraksha Bima Yojana (PMSBY) launched by

the Prime Minister in May 2015 have continued to witness

large number of enrolments. As at the end of November, total

enrolments for these schemes were in excess of 121 million

with enrolments in PMJJBY at over 28 million and PMSBY at

over 91 million. State Bank of India and Punjab National Bank

have continued to lead banks with maximum enrolments of

over 21 million and 8 million members, respectively.

As per a circular issued by the Ministry of Finance, the last

date for enrolling under PMJJBY and PMSBY, without self-

certificate of good health for PMJJBY, has been further

extended until 30 November 2015. Persons enrolling in

PMJJBY after this date will be required to submit prescribed

self-certification of good health while those enrolling in PMSBY

are not required to do so.

The National Insurance Company has reportedly tied up with

the Department of Posts for marketing of policies under the

PMSBY. In addition to this, Boxing India (BI) has reportedly

decided to facilitate PMJJBY for medal-winning women boxers

from this year.

Shriram Life has reportedly tied up with SEWA bank to offer

PMJJBY to the rural population in Gujarat. The total number

of policies sold by the insurer as at the end of November was

over 5,000.

Reportedly, the IRDAI has approved the Life Insurance

Council’s appeal to offer 50% rebate on reinsurance rate on

PMJJBY in an effort to help minimise potential losses to life

insurers from these low premium schemes. In addition to this,

the Life Insurance Council has made an appeal to several

state governments to waive the stamp duty of INR40 for

selling this product. As per the official website for these

schemes, the total number of claims reported until the end of

November were in excess of 7,800 for PMJJBY and 1,540 for

PMSBY.


Regulatory update

“Pursuant to the Insurance Laws (Amendment) Act 2015, the regulator has issued a number of new

regulations, exposure drafts and guidelines. The most significant developments during the quarter have been

the publication of recommendations of the committee that examined extant life insurance regulations and

subsequent release of exposure draft by the IRDAI on ALSM of life insurance business. Additionally, the

IRDAI has mandated all insurance companies to comply with the requirement of ‘Indian Owned and

Controlled’ by January 2016.”

IRDAI (ALSM of Life Insurance Business)

Regulations, 2015

A committee formed by the IRDAI to examine existing life

insurance regulations, with a focus on actuarial aspects has

submitted a detailed report on its findings and

recommendations. The committee recognised the need to

align regulatory framework to the International Association of

International Supervisors (IAIS) Core Principles. Furthermore,

it recommended adoption of a Risk Based Capital (RBC)

framework of solvency assessment with a smooth transition

over a period of few years during which a concurrent

framework could be in place.

Upon further consultation of the Insurance Advisory

Committee, the IRDAI has released an exposure draft on

valuation of assets, liabilities and solvency margin of life

insurance business. While most amendments are in line with

the recommendations of the committee on review of life

insurance regulations, the IRDAI has been silent on the

transition towards a RBC framework. Key highlights include:

The regulations have introduced the requirement to

maintain “Available Solvency Margin” at a level, which is

not less than 50% of the amount of minimum capital and

100% of required solvency margin, whichever is higher.

Introduction of “Control level of Solvency”, i.e. the

minimum solvency ratio on the breach of which the

Authority shall take action. Such a breach would be

where the solvency ratio falls below 150%.

The regulations allows an insurer to raise money through

preference shares, debentures and other subordinated

debt, subject to a cap of 25% of the total paid up equity

capital.

Amongst other inadmissible assets, value of leasehold

improvements and service tax unutilised credit to be

considered inadmissible. The specific requirement of

depreciation of computer hardware and software has

been excluded, instead the value of computer equipment

stated in the financial statements should be used for the

calculation of solvency margin.

Regulation stipulates the calculation of reserves for one

year renewable group term assurances including riders

attached to group business should allow for unexpired

risk, premium deficiency and incurred but not reported

claims. Furthermore, reserves for riders attached to

individual products should be higher of gross premium

valuation reserve and unexpired premium reserve. The

regulations have further detailed the valuation

methodology of variable insurance products.

If valuation basis allows for the lapse decrement, then it

should be based on past experience of the product or

similar products, allowing for the expected future

experience based on the nature of the products, target

market and distribution channel.

The mathematical reserves shall be the highest of

reserve computed under Gross Premium Valuation

method, Guaranteed Surrender Value and Special

Surrender Value. This best practice has been followed

by most of the Companies currently, it has now been

formalised in this regulation.

Requirement of additional reserves to be held for

expenses if the valuation assumptions for expenses do

not reflect the current expense experience of the insurer.

The IRDAI has further released an exposure draft with

guidelines on the procedure for preparation of Actuarial Report

and Abstract (ARA). The statement of assets (Form AA) has

been moved to ARA from the ALSM regulations. It also states

that the statements should be prepared separately for

participating and non-participating business.

IRDAI (Other Forms of Capital) Regulations,

2015

Our India Market Life Insurance Update, Edition 60 covered

the exposure draft on other forms of capital. The draft

guidelines have now been issued as regulations and amongst

other minor updates, the minimum redemption period of

preference shares and debentures has reduced to 10 years

from previously stipulated 15 years as per the exposure draft.



IRDAI (Minimum Limits for Annuities and other

Benefits) Regulations, 2015

The regulator has issued minimum limits for annuities and

other benefits secured by policies offered by life insurers,

where benefits are not less than:

Annuity of INR1,000 per month,

Gross sum of INR1,000 for micro-insurance and health

insurance business,

Gross sum of INR5,000 for other life insurance policies.

However, the IRDAI may approve lower annuities and other

benefits in extraordinary circumstances.

The Insurance Laws (Amendment) Act 2015 -

Guidelines on Indian Owned and Controlled

While the passage of Insurance Laws (Amendment) Act 2015

allowed increase in FDI limit in the Indian insurance sector to

49%, it also provided for a stipulation that insurance

companies be “Indian owned and controlled”. Our India

Market Life Insurance Update, Edition 59, covered the

clarifications issued by Ministry of Finance in this regard. The

IRDAI has subsequently released guidelines providing further

clarity. Key tenets of the guidelines include:

Control can be exercised by virtue of shareholding or

management rights or shareholder agreements or voting

agreements.

Indian promoter shall nominate majority of the directors,

excluding independent directors. The Chairman of the

Board with a casting vote shall also be nominated by the

Indian promoter.

The Board shall appoint key management person

including the CEO.

Control over significant policies of the insurance

company should be exercised by the Board.

Quorum (i.e. minimum number of members necessary to

conduct the business of a group), should include

presence of a majority of Indian directors irrespective of

whether a foreign investor’s nominee is present or not.

The right of a foreign investor’s nominee to constitute

valid quorum for meetings shall be considered a

protective right.

All the existing insurance companies irrespective of their

intention to increase foreign stake-holding, are required to

comply with these guidelines by January 2016.

Reports suggest that with the new norms, multinationals can

no longer enter into agreements which give them a veto power

in the management of the insurance business.

Guidelines on remuneration of Chief Executive

Officer (CEO)/ Whole-time Director (WTD)/

Managing Director (MD) of Insurers

Under the current regulations, there are no limits set by the

IRDAI on the remuneration of CEO/WTD/MD of life insurance

companies apart from the clause of remuneration beyond

INR15 million should be debited to shareholder’s fund. The

IRDAI has issued guidelines outlining a framework of the

compensation of top-level executives. It suggests formulation

of a comprehensive compensation policy and an annual

review thereafter. The key recommendations are:

Compensation should be adjusted for all types of risks,

compensation outcomes should be symmetric with risk

outcomes and the pay-outs should be sensitive to the

time horizon of the risk.

Asset mix of compensation in terms of cash and equity

must be consistent with risk alignment.

The fixed and variable pay components must be

reasonable and balanced. Employee Stock Option Plan

(ESOP) may be excluded from the variable pay but the

extent of ESOP should be reasonable. The variable

component must be attached to the financial

performance of the insurer.

Sweat equity should be governed by the regulations of the

Sweat Equity Regulations issued by Securities and Exchange

Board of India (SEBI).

Anti-Money Laundering (AML)/Counter-

financing of Terrorism (CFT) Guidelines

The IRDAI has issued guidelines on AML, requiring life

insurers to establish an AML programme for guarding against

insurance products being used to launder unlawfully derived

funds or to finance terrorist acts. The regulator has laid

emphasis on “know your customer” norms, due diligence, risk

assessment and implementation of Unlawful Activities

(Prevention) Act. The programme envisages submission of

reports of certain transactions to Financial Intelligence Unit-

India. Suspicious Transactions Report (STR) is another

measure to ensure that all complex, unusually large

transactions with odd patterns are scrutinised for their

authenticity.

https://www.towerswatson.com/en-IN/Insights/Newsletters/Asia-Pacific/india-market-life-insurance/2015/June-2015-India-Market-Life-Insurance-Update



IRDAI (Issuance of Capital by Indian Insurance

Companies transacting Life Insurance

Business) Regulations, 2015

The IRDAI has issued exposure draft on issuance of capital by

life insurance companies allowing life insurance companies to

go for an IPO subject to compliance of the lock-in period

specified in the certificate of registration. The key highlights of

the exposure draft are:

It gives the IRDAI the authority to direct a life insurance

company to issue its IPO within one year, if the

circumstances warrant so.

It has removed the prerequisite condition of the EV to be

twice of the share capital plus securities premium.

The insurer would be required to provide additional

disclosures on agent productivity, investment in equity

and bonds, value of new business, reinsurance strategy

and significant accounting policies.

Reports suggest that large insurance companies – ICICI

Prudential Life, SBI Life and HDFC Life, with Assets Under

Management (AUM) of more than INR600 billion might be

directed by the IRDAI to issue IPO so that the sharing of risks

and returns are not concentrated in one or two partners. It is

expected that this would result in greater transparency and

accountability required for efficient management of

companies.

IRDAI (Registration of Corporate Agents)

Regulations, 2015

The existing regulation on corporate agents followed a tied

agency model, in which a corporate agent could have a tie-up

with only one insurer from the same line of business. As

covered in our India Market Life Insurance Update, Edition 59,

an exposure draft on registration of corporate agencies was

issued allowing a life insurance corporate agent to have

arrangements with a maximum of three life insurers to solicit,

procure and service their life insurance products.

The exposure draft has now been formalised as a regulation

with some additional guidelines for the corporate agents that

intend to undertake telemarketing activities. The corporate

agent is required to file with the IRDAI the names of

authorised verifiers engaged by the telemarketer, for them to

be issued a certificate.

Reports suggest that the IRDAI is further planning to

strengthen the norms against mis-selling by corporate agents

by making the intermediaries accountable for the policies sold

by them. Each policy will have to be mapped to the person

selling it such that the person responsible can be tracked

easily in the event of any complaint.

IRDAI (Preparation of Financial Statements

and Auditors’ Report of Insurers) Regulations,

2015

Pursuant to the notification of the Insurance Laws

(Amendment) Act, 2015 the IRDAI has released exposure

draft to amend the existing Preparation of Financial

Statements and Auditor’s Report of Insurance Companies

Regulations, 2002. The key highlights include:

Revised formats to capture other forms of capital and

head office account (applicable to foreign reinsurer

operating through branch office established in India).

Stipulation barring any investment in property for self-

use using funds of participating business.

In addition to the existing, the draft exposure has

introduced a few other accounting principles for

treatment of forward exchange contracts, preliminary

expenses and catastrophe reserve.

The draft also lays down the instructions for preparation

of financial statements for unit – linked products and

group insurance business.

IRDAI (Obligations of Insurers to Rural and

Social Sectors) Regulations, 2015

Our India Market Life Insurance Update, Edition 59, covered

draft regulations on the Obligation of Insurers to Rural and

Social Sectors, 2015. The IRDAI has now finalised the

regulations that shall be applicable from FY2016-17. Key

highlights of the regulations:

The rural sector obligation has been defined as a

percentage of the total policies written in that year. The

percentage is dependent on the number of years the

insurer has been in business. The obligation ranges

from 7% in the first financial year to 20% from the 10th

financial year onwards.

The regulation also stipulates insurers during the second

year of business to sell a minimum of 0.5% of total

business procured in the preceding financial year in

socially backward areas, this would gradually increase to

5% from year ten onwards.

Every insurer is required to have effective operational

procedures for accurate classification of business

obligations into the rural and social sectors.

In addition to this, insurers are required to submit an

annual certificate, furnishing the actual business details

of the fulfilment of these obligations.




Others

It has been reported that some insurers have been found to

not fully comply with claim settlement orders passed by judicial

or quasi-judicial bodies such as the consumer forum and

insurance ombudsmen. The IRDAI has issued a circular

directing all insurers to comply with such orders or appeal

against the order within the stipulated time or within 60 days if

a time frame is not explicitly provided.

In line with the Government of India’s Digital India Initiative,

the IRDAI is rolling out an online system to track product

development and approval process. Insurers would be asked

to provide the required information in a prescribed format and

the platform would also be used to resolve any queries that

the IRDAI might have. This process is intended to provide

greater transparency and accelerate product approval time-

frames.

Our India Market Life Insurance Update, Edition 50, reported

the proposed regulation mandating life insurance companies

to reinsure up to 30% of sum assured on each policy with

domestic reinsurer - General Insurance Corporation of India

(GIC Re). However, following further deliberations, in

particular with respect to presence of other domestic

reinsurers, it is reported that the IRDAI is yet to finalise the

quantum of risk to be transferred and the proposal has been

put on hold.

The IRDAI has issued regulations regarding “Maintenance of

Insurance Records”, directing life insurance companies to

maintain electronic records of all policies and claims

completely and accurately with necessary security features. It

is also mandatory to provide access to these records to the

Authority for both onsite and offsite inspections. The Board is

required to frame a policy for the manner and maintenance of

the records, such policy should be reviewed once in a year,

within 90 days after financial year end. Once finalised, the

insurer is required to submit its board approved policy on

maintenance and storage of such records to IRDAI.

The IRDAI recently issued guidelines for the general and

health insurers on the “Point of Sales Person”, an individual

who solicits and markets only certain pre-underwritten

products approved by the Authority. The IRDAI recognised

that the individual marketing such products requires a lesser

degree of training and level of examination. Reportedly, life

insurers have approached the regulator to allow for the same

provision in the sphere of life insurance as well. Reports

suggest that such a move will increase insurance penetration

and reduce the overall cost of distribution.

https://www.towerswatson.com/en-IN/Insights/Newsletters/Asia-Pacific/india-market-life-insurance/2013/India-Market-Life-Insurance-Update-April-2013


Distribution update “The reporting period saw an increased focus on developing IT enabled and online presence by life insurers.

The industry also witnessed some changes in the bancassurance tie-ups for a few key insurers. In this

edition, we have also included our study of the growth in new business premium income by different

channel in the first half of FY2015-16 which is driven largely by the bancassurance channel for the majority

of the top ten private life insurers by weighted new business premium collections.”

Bajaj Allianz Life has renewed its bancassurance partnership

with Dhanlaxmi Bank. As per the new agreement, the bank will

continue to be its bancassurance partner for nine years. The

insurer expects to leverage the bank’s pan India presence with

a network of 280 branches to sell its life insurance policies.

Bharti AXA Life is planning to open five branches in FY2015-

16, as a part of its strategy to expand its presence in the north

east and tier three cities. As a further enabler to its expansion

plans, the insurer is targeting to strenghten its active sales force

by adding 200 to 300 personnel.

Future Generali Life is reportedly aiming to drive its growth by

entering into various bancassurance partnerships along with an

addition of 8,000 to 10,000 agents to its agency force in

FY2015- 16. Additionally, the insurer is also working towards

launching simplified underwriting products that can be sold

easily and quickly over the counter.

Paytm is partnering with insurance companies in order to

facilitate the cashless payment of renewal premiums through

smartphones. It has started with three insurers – HDFC Ergo,

Religare Health Insurance and ICICI Prudential Life. With this

facility, policyholders can log on to a mobile application and pay

premiums using the Paytm wallet.

Kotak Life aims to strengthen its distribution network with

emphasis on bancassurance. It expects a growth of 25% in

gross written premiums in the current financial year, increasing

the contibution from bancassurance channel to 50% from the

current 45%. In additon to this, the insurer plans to expand its

active agency force, and increase digitisation so as to ease the

process for both the bancassurance channel and agents.

LIC, is planning to hire 0.2 million agents in FY2015- 16 as a

part of its recruitment drive for agents. The insurer expects

nearly 85% contribution towards the business by its agency

force.

Shriram Life has entered into a partnership with Telenor

Communications India, with the aim of providing insurance

services to the telecom customers. The tie-up will increase

insurance penetration by spreading insurance awareness

among the large rural and semi urban population. Reportedly,

the insurer is also planning to open about 30 new branches in

the country,with a major focus on Gujarat, in the FY2015-16 and

is targeting a 30% hike in its new business revenues by this

move.

Tata AIA Life has tied up with IndusInd Bank to provide life

insurance cover through the bank’s branches. As per reports,

a wide range of protection, savings and wealth creation plans

will be offered through the banks network of 854 branches.

Reportedly, this is the second largest bancassurance tie-up for

the insurer. Prior to this, IndusInd Bank was a distribution

partner of Aviva Life.

To leverage online distribution channels, insurers are focussing

on strengthening their online presence through various

initiatives as below:

Bharti AXA Life aims to launch more online specific

products in the next two to three years.

Future Generali Life has launched an online portal to

digitise its customer service procedure. The portal

provides all the necessary details pertaining to the

products and gives the customer an easy to use

platform. The insurer is also planning to launch a new

online term plan followed by an online endowment and

an online unit linked product.

SBI Life recently bought 100,000 sq ft office space in

Navi Mumbai, with the aim of developing its IT

resourcing.

India Post is reportedly planning to expand its life insurance

business by offering a range of savings and insurance

products to the general public, apart from its existing offering

to the postal staff and government officials. It plans to

leverage on its wide reach of 160,000 post offices, 45,000

postmen and 250,000 extra employees to offer a multitude of

products and increase its insurance segment by 500%.


Growth in individual unweighted new business premium income by channel during April to

September 2015:

New business momentum driven by bank-led distribution models.

An analysis of public disclosures by life insurers show an

overall decline in the individual new business premium

collections for April to September 2015 compared to the same

period in the previous year. The individual unweighted new

business premium collection reduced by 10.1% in the industry,

a fall which can largely be attributed to the sluggish

performance of the agency channel, which witnessed a

decline in new business collections of 14.4%. This decline in

the agency channel contrasts with a growth of 3.6% for

bancassurance and a marginal 0.7% growth for other

channels.

The following chart sets out relative contribution of each

agency, bancassurance and other channels to overall growth

in individual unweighted new business. Masked within the

overall decline in individual unweighted new business

collections for the industry is experience of the private players

which combined witnessed a grown of 16.2% from first half of

FY2014-15 and that of LIC which witnessed a fall of 23.5%

year-on-year.

The growth of 16.2% for private players was largely driven by

growth in new business from bancassurance of 12.7% with

growth in agency remaining relatively flat for private players as

a whole. The relative channel performance is evident as 7 out

of top 10 private insurers that have registered a year on year

growth in individual new business premium are either bank-

promoted insurers or have significant bancassurance tie-ups,

whilst the three insurers that experienced fall in the

unweighted individual new business premium income are all

agency led. This is represented in the chart through relative

contribution of each channel in the overall growth for each

company.

Amongst the top 10 private insurers, Kotak Life and SBI Life

witnessed the highest growth in unweighted individual new

business premium income for the half year. Whilst the growth

for SBI Life was largely bancassurance driven, Kotak Life

demonstrated a balanced performance of its bank and agency

channels. The only other insurer with relatively balanced

performance across these two channels was Max Life with all

other insurers witnessing starkly different outcomes across

channels. This is represented in the chart through blue/black

markers showing the absolute year-on-year growth in

bancassurance/agency channel for first half of FY2015-16.

Birla Sun Life, which saw its bank-distribution partner,

Citibank move to Tata AIA earlier in the year is the only

private life insurer among those represented under the study

to register a decline in its individual new business sourced

through bancassurance channel.

Source: Towers Watson analysis using public disclosures data.

*Figures for Aviva Life, Sahara Life, Bharti AXA Life and Canara HSBC OBC Life are not available as at September 2015 and hence have been excluded from the

above analysis.


Products update “There was an increased focus on unit-linked products with nearly two-fifths of the new product launches

during September to November 2015 being linked products. Insurers are also looking to launch online

insurance plans – covering both savings and protection products - to strengthen their presence in the digital

space.”

There has been a renewed interest in unit-linked products,

driven by a positive economic outlook, leading to a 20% to

30% annualised gains in unit-linked funds over the past three

years, as well as a resurgence in sales of unit-linked policies.

We have observed a relatively higher number of unit-linked

product launches during the current reporting period as

compared to the previous quarter.

Meanwhile Exide Life is reportedly planning to re-align its

strategy to shift its new business mix towards a greater

proportion of unit-linked products from its current portfolio

dominated by non-linked products. SBI Life however has

stated that it intends to maintain a business mix as

diversified as possible.

To improve policy persistency, PNB MetLife has launched a

reinstatement drive which would enable the customers to

avail waiver on reinstatement charges.

Bajaj Allianz Life has also announced a special revival

campaign to help policyholders renew their lapsed traditional

life insurance policies. As per media reports, under the

campaign, customers would be given a 50% waiver on the

interest amount payable since the policies lapsed.

Select company-wise new product launches during the

period September to November 2015 are summarised in the

table below:

Company name Product name Product description

Aviva Life Aviva Dhan Vriddhi Plus Non-linked; participating limited pay endowment plan. It provides flexibility to choose the premium payment term from 5, 7 and 11 years. It offers a maturity benefit of 100% of premiums paid along with accrued bonuses.

Bharti AXA Life Bharti AXA Life Child Advantage Non-linked; participating endowment child plan offering two benefit pay-out options. It also provides waiver of future premiums on death.

Birla Sun Life BSLI Wealth Aspire Plan Unit-linked; non-participating endowment plan. Loyalty additions are accrued at the end of every fifth policy year, starting from the fifth or tenth policy year depending upon the amount of premium paid.

DHFL Pramerica Life DHFL Pramerica e-Save Plan Online non-linked; non-participating endowment plan offering annual guaranteed additions based on the amount of annualised premium.

DHFL Pramerica Rakshak Gold Non-linked; non-participating limited pay endowment plan offering annual guaranteed additions at the end of policy year that will increase after every three policy years.

Edelweiss Tokio Life Edelweiss Tokio Life Dhan Labh Non-linked; non-participating limited pay endowment plan offering assured additions every year starting from the 13th policy year.

Future Generali Life Future Generali Jan Suraksha Non-linked; non-participating single premium term insurance.

Future Generali Flexi Online Term Plan

Online non-linked; non-participating term insurance that offers flexibility to choose the form of death benefit from three options – lump sum benefit, monthly pay-out or a combination of lump sum benefit and monthly pay-out.

HDFC Life HDFC Life Click2Retire Online unit-linked; non-participating pension product offering a guaranteed vesting benefit. It has no entry/exit and policy administration charges associated. It provides single and limited pay options.


Company name Product name Product description

HDFC Life Assured Pension Plan Unit-linked; non-participating pension product with limited pay and single pay option available. It provides loyalty additions every alternate year after 11th policy year.

IDBI Federal Life IDBI Federal Wealthsurance Future Star Insurance Plan

Unit-linked; non-participating child plan. It offers up to nine fund options to invest in. It offers waiver of future premiums on death as well as guaranteed loyalty additions at specified policy intervals.

Kotak Life Kotak Premier Pension Plan Non-linked; participating pension plan providing guaranteed additions in the first five policy years and bonuses from the sixth policy year. It also offers a minimum guaranteed benefit and additional protection through riders.

Max Life Max Life Platinum Wealth Plan Unit-linked; non-participating endowment assurance plan with a choice of five funds to invest in and unlimited free switches in a policy year. It offers guaranteed loyalty additions and additional units at the end of every five years starting from the tenth policy year. It also provides an option of dynamic fund allocation where a large proportion of premium is invested in equity oriented funds.

Max Life Monthly Income Advantage Plan

Non-linked; participating limited pay anticipated endowment plan offering guaranteed monthly income for a period of 10 years after the premium paying term. It also offers optional term and accidental death and dismemberment riders.

SBI Life SBI Life CSC Saral Sanchay Non-linked; non-participating variable insurance plan. It offers guaranteed minimum interest rate of 1% per annum and also provides flexibility to choose premium amount with a minimum annual premium of INR 2,400. A top-up premium option is also available which can be used to increase the sum assured.

Star Union Dai-ichi Life SUD Life Aayushmaan Non-linked; participating endowment plan providing guaranteed additions at end of each policy year for the first five policy years. It offers the options of accidental death and total and permanent disability benefit and family income benefit riders.

SUD Life Group Retirement Benefit Plan

Unit-linked, non-participating group insurance plan for gratuity and leave encashment liabilities of employers. It provides an option to choose from four investment funds.


An archive of previously published India Market Life Insurance Updates is available at: www.towerswatson.com/en-IN/Insights/Newsletters/Asia-Pacific/india-market-life-insurance

Contact details

Towers Watson's Risk Consulting team covers the length and breadth of India with associates based in Mumbai and Gurgaon.

The India Market Life Insurance Update has been prepared by

Towers Watson for general information purposes only and does not constitute professional advice. The information, opinions and projections contained in this Newsletter are derived from various sources and have not been independently verified by Towers Watson. If you require professional advice or require any further information please contact any of the above named individuals.

Research and editorial team Vivek Jalan Kunj Behari Maheshwari Abhilasha Goyal Ashik Salecha Esha Goel Sanya Gupta

Further Information For further information please contact your Towers Watson Consultant or:

Vivek Jalan

Director – Risk Consulting and Software Towers Watson India +91 124 432 2816 [email protected]

Dilip Chakraborty

Senior Adviser Towers Watson India +91 124 432 2800 [email protected]

Kunj Behari Maheshwari

Director – Risk Consulting Towers Watson India +91 124 432 2821 [email protected]

Towers Watson's Risk Consulting team covers the length and breadth of India with associates based in Mumbai and Gurgaon.

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