What is Insurance?

Evolution Types of Insurance Insurance Sector Reforms Global Players Indian Mergers LIC Indian Scenario

Insurance is a form of contract or agreement under one party agrees in return of a consideration to pay an agreed amount of money to another party to make goods for a loss, damage, injury to something of value Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a potential loss, from one entity to another, in exchange for a premium.

Insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage
Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice

1818 - Oriental Life Insurance Company 1st Insurance Company. 1870 - Bombay Mutual Life Assurance Society 1st Life Insurance Company. 1912 - The Indian Life Assurance Companies Act enacted the 1st Law to Regulate the Life Insurance Business. 1928 - The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life & non-life insurance businesses. 1938: Earlier legislation consolidated & amended the Insurance Act with the objective of protecting the interests of the insuring public.

1956: 245 Indian & foreign insurers & provident societies are taken over by the central government & nationalized.
LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India. .

LIFE INSURANCE INSURANCE

NON- LIFE

Property (eg.Builders risk insurance) Vehicle(eg. Car Insurance) Marine (eg. Marine insurance) Miscellaneous (eg. Fire Insurance)

In 1993, Malhotra Committee - headed by former Finance Secretary & RBI Governor R.N. Malhotra.

Objective - to create more efficient & competitive financial system.

Key recommendations of the reform; 1.Structure: a. government stake 50% in insurance companies. 2.Competition: Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the sector. No Company should deal in both life and general insurance through a single entity. Foreign companies may be allowed to enter the industry in collaboration with the domestic companies.

FORMATION: Insurance corporation LIC was formed in September 1956 by an act of parliament LIC was formed with the capital contribution of 5 crores from the govt. of India and has the sole mandate of conducting life insurance business in India. Before the formation of LIC there where 245 Indian and foreign insurers in India. OBJECTIVES:

To maximize mobilization of peoples savings by making insurance linked saving adequately attractive. To spread life insurance much more widely and in particularly in rural area, providing them with insurance at reasonable price and adequate finance cover.

LIC has come a long way since its nationalization in 1956 over 40 years later in 1997 LIC had grown from Rs. 3.78 billion of new business in 1957 to Rs 555.5 billion The rural India accounting for around 40% of the business. In 1997, LIC had spread to the farthest corners of the country with an extensive network of over 8 lakh agents, 2048 branches(1370cities), 100 Divisional office, 7 Zonal offices and 1 Central office. LIC has branch offices in U.K., Mauritius, & Fiji. In U.K.

The potential of the Indian insurance industry is huge. HOW??? .. It has an annual growth rate of 15-20% & ..the largest number of life insurance policies in force. Total value of the Indian insurance market (2004-05) is at Rs. 450 billion (US$10 billion). Insurance & Banking Services contribution to the country's gross domestic product (GDP) is 7% The funds available with the state-owned Life Insurance Corporation (LIC) for investments are 8% of GDP.

The year 1999 saw a revolution in the Indian insurance sector------the ending of government monopoly -----the passage of the Insurance Regulatory and Development Authority (IRDA) Bill
A foreign partner can hold 26% equity in an insurance company, but there was a proposal to increase this limit to 49%. Foreign investments of Rs. 8.7 billion have poured into the Indian market & 21 private companies have been granted licenses.

India's insurance sector to see 500 per cent growth by 2013: Study

India's insurance sector - 500 % growth over the next three years 60 billion-dollar industry by 2013 India's more than one billion people are uninsured, the study by the Associated Chambers of Commerce and Industry (Assocham) said. 'A large part of rural India is still untapped due to poor distribution, large distances & high costs relative to returns, said Assocham president Anil K Agarwal He said the study had revealed that rural & semi-urban India would contribute 35 billion dollars to the Indian insurance industry by 2010. The study added that the urban sector insurance was estimated to reach 25 billion dollars by 2010, life insurance 15 billion and non- life insurance 10 billion dollars.

Insurance can be summed up as Praying for the best being PREPARED for the WROST.

Insurance Regulatory and Development Authority (IRDA)

IRDA is an autonomous apex statutory body which regulates and develops the

insurance industry in India. It was constituted by a Parliament of India act called

Insurance Regulatory and Development Authority Act, 1999 and duly passed by the Government of India. The agency operates its headquarters at Hyderabad, Andhra Pradesh where it shifted from Delhi in 2001. IRDA was established by an act enacted in Indian Parliament known as IRDA Act 1999 and was amended in 2002 to incorporate some emerging requirements as

well as to overcome some deficiencies in the entire process.

Mission of the authority

To protect the interest and secure fair treatment to policyholders; To bring about speedy and orderly growth of the insurance industry for the benefit of the common man, and to provide long term funds for accelerating growth of the economy;

To set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing;
To ensure speedy settlement of genuine claims, to prevent insurance frauds and other malpractices and put in place effective grievance redressal machinery;

Composition of authority
As per the section 4 of IRDA Act' 1999, Insurance Regulatory and Development Authority (IRDA, which was constituted by an act of parliament) specify the

composition of Authority.
The Authority is a ten member team consisting of (a) (b) (c) a Chairman; not more than five whole-time members; not more than four part-time members,

(all appointed by the Government of India)

Current Advisory committee Chairman Mr. Hari Narayana is the current Chairman of IRDA. Full-timeMembers Mr. KK Srinivasan Sri G Prabhakara Dr R Kannan

Sri R.K. Nair

Disclosure norms

IRDA

has

issued

disclosure

norms

for

insurance

companies,

mandating them to publish accounts on a half yearly basis.

Insurance companies that intend to go public would also need to disclose details of investment performance. IRDA has also instructed all life insurers to explicitly disclose, in their benefit Illustration document, the exact amount of

commission/brokerage paid by insurers to insurance agents.

Life insurance industry

The life insurance industry in India was nationalized under the Life Insurance Corporation Act of 1956. Until 1999, when the Insurance Regulatory and Development Authority Act was

passed, LIC was the only life insurance provider. Since

liberalization, a total of 20 life companies have been formed, with the majority of them being joint ventures with foreign companies.

Products offered

Participating Products ULIPs Pure risk cover products Riders

Unit Linked Insurance Plan (ULIP)

A ULIP is a market-linked insurance plan. The difference between a ULIP and other insurance plans is the way in which the premium money is invested. It allows protection and flexibility in investment, which are not present in other

types of life insurance such as whole life policies. The

premium paid is used to purchase units in investment assets chosen by the policyholder.

Features of ULIP

Transparency Insurance cover plus savings Multiple investment options -Aggressive ULIPs

-Balanced ULIPs
-Conservative ULIPs Flexibility

Focus on Financial Inclusion

Need to increase financial inclusion in India The approach to insurance must be in sync with the evolving times. The mission of the insurance sector in India should be to extend the insurance coverage over a larger section of the population and a wider segment of activities. The need for the delivery of financial services at an affordable cost to vast sections of disadvantaged and low-income groups is on the

rise.

Measures to increase financial inclusion in India

Increase financial literacy

Improve access and reach vast sections of low income groups Insurance as tax saving instrument Motivate transfer savings from physical assets to financial assets

On 1st april 1935

Money market

How many companies merged together to form LIC?

243

IBAI stands for?

Ans. Insurance Brokers Association of India

How much stake does GOI has in LIC?

Ans. 100%

AXIS BANK

Which Level of ADR allows foreign companies to issue shares directly into the US, rather than simply allowing the indirect purchase of already created shares?

LEVEL 3 ADR

Barclays global investor

Securities exchange commision

Which of the following instruments are traded in a capital market? A) U.S. government agency securities B) Negotiable bank CDs C) Repurchase agreements D) Eurodollars E) None of the above

U.S. government agency securities

Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which they are sold are known as A) foreign bonds. B) Eurobonds. C) Eurocurrencies. D) Eurodollars.

Eurobonds.

Which among the following body promoted securities Trading Corporation of India Limited (STCI) jointly with the Public sector Banks? (a) SEBI (b) Reserve bank Of India IDBI Ltd. (d) ICICI Ltd

RESERVE BANK OF INDIA

Mutual funds are regulated in India by which among the following? (a) RBI (b) SEBI (c) Stock exchanges (d) RBI and SEBI both

SECURITIES EXCHANGE BOARD OF INDIA

interbank term money refers to borrowing among banks for a.overnight b.more than 14 days c.less than 14 days

Overnight

A growth fund is A.one in which the money is invested in equities B.one in which the money is invested in govt bonds C.one in which money is invested equally in equity and bonds D.money is invested only in money market instruments

A.one in which the money is invested in equities

Which of the following is not a characteristic of a preference share? a) Ranks last for payment in the event of company liquidation. b) Unpaid dividend accrues until it can be paid. c) Do not usually have voting rights unless dividends fall into arrears. d) It is more like debt than a share in its characteristics.

a. Ranks last for payment in the event of company liquidation

Which of these is an appropriate measure of individual share risk (i.e. the risk of a single share held aspart of a porfolio)? a) Variance. b) Beta. c) Standard deviation. d) Correlation.

beta

What is a leveraged buyout? a) It is a type of joint venture. b) It is an acquisition in which a large acquirer has leverage through bargaining power over a small target. c) It is an acquisition which is funded from a relatively large amount of debt. d) It is an acquisition which is funded from a relatively low amount of debt.

c. It is an acquisition which is funded from a relatively large amount of debt. A leveraged buyout (LBO) uses a high level of gearing in order to finance the acquisition of a target company. LBOs often accompany MBOs where managers buy out their own firm.

Which region has the largest amount of Mergers and Acquisitions activity and has the longest history of this type of business activity? a) Continental Europe b) The UK c) The USA d) Japan and Korea

The USA By contrast with much of the rest of the world, this kind of activity has been taking place in the US since the late 1800s. To a lesser extent, the UK and some of the other English speaking countries such as Canada and Australia have quite a long history of M&A activity.