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Relevant Input

Components of Premium and their impact on return


Premium Component

Mortality Overheads Savings

Capability in Maximising returns

Clear Underwriting Norms

Effective Cost Control


Efficiency in Fund Management

Which leads to
Rev ise d

Mortality Overheads Savings

IT IS NOT POSSIBLE TO INDICATE RETURNS, LEAVE ALONE GUARANTEEING IN THE LONG RUN
The reasons are : Government has decided to reduce its interest burden on its borrowings Interest Rate on Government borrowings depends on Domestic Inflation Rate Government Borrowing Program & Fiscal Deficit Global Interest Rate Scenario Prevailing Exchange Rates ie. Rs Vz $ etc.

RE AL RE T URNS T AK E A HIT 9 4 -9 5 9 5 -9 6 9 6 -9 7 9 7 -98 9 8 -99 9 9 -0 0 0 0 -0 1 NO W


INFLATIO N -W PI (% ) P PF (% ) P os t O ffic e Monthly Inc om e Sc hem e (% ) 1 3 .0 0 1 3 .0 0 1 3.0 0 1 3 .0 0 1 3 .0 0 1 3 .0 0 1 1 .0 0 9 .2 5 K is an Vikas Patra (% C om pounded) 1 3 .4 3 1 3 .4 3 1 3.4 3 1 3 .4 3 1 3 .4 3 1 3 .4 3 1 2 .2 5 9 .5 0 Gold Pric es ($/O unc e) 3 8 4 .1 038 7 .9 03 3 1.3 02 9 4 .1 02 7 8 .6 027 9 .1 02 6 3 .5 026 3 .5 0
S o urce : Bu sin e ss W o rld - 6th a u g u st 2001

1 2 .5 0 8 .1 0 4 .6 0 4 .4 0 5 .9 0 3 .3 0 7 .1 0 1 2 .0 0 1 2 .0 0 1 2.0 0 1 2 .0 0 1 2 .0 0 1 2 .0 0 1 1 .0 0

5 .0 3 9 .5 0

Any projection on PPF interest rate in 2005 ?

1 6 .0 0 1 4 .0 0 1 2 .0 0 1 0 .0 0 8 .0 0 6 .0 0 4 .0 0 2 .0 0 0 .0 0
94 -95 95 -96 96 -97 97 -98 98 -99 99 -00 00 -01 NO W

IN F L A T IO N -W P I (% ) P P F (% ) P o s t O ffic e M o n th ly In c o m e S c h e m e (% ) K is a n V ik a s P a tra ( % C ompounded)

G V SE U ITIES OT C R ( IN LU IN C TR L G V S U ITIES) C D G EN A O T EC R IN A FR STR C TR U U E O ER A PR V SEC R TH P O ED U ITIES O ER IN ESTM T A PER PR . N R S TH V EN S U O M This is applicable to all Life Insurance C panies om SU PLU D R S ISTR U NR U TIO IB TIO EG LA N T PO Y H LD S O LIC O ER T EQ IT O N R O T E LIFE C O U Y W E S F H O

50% 15% 20% 15%

90% 10%

Q : You may get the returns, but you may decide not to pass on to Policyholders Q: Pvt Cos are profit driven, the promoters may take all the benefits ?

The policy holders funds and the Promoters funds are two separate pools. Surplus arising out of Policyholders fund has to be necessarily distributed as Per IRDA guidelines Pvt Cos are profit driven and it actually benefits the policyholders.

Other arguments
Is it possible for any one to tell what will be the
government borrowing rate , five years from now ?

Mutual fund debt products dont guarantee any


returns NOT even Principal

In mutual fund industry, Debt funds ,the owners are


making losses but the schemes are doing well.

RISKS OF GUARNATEED RETURNS TO THE CUSTOMER

When Interest Rate comes down, in order to maintain


the rate, funds get invested at Higher Risk Instrument

Higher Returns may be paid at the cost of othersLeading to Unfair practices - Regulator will step in

Higher Assured Returns means Promoters may need to


pump in additional money. ( CanBank MF Schemes, MIPs of UTI etc..)

Guaranteed Returns - How it affects current and future bonus

Income for a Life Insurance company Expenses for Life Insurance Company Premium Income Interest Income from Investments Commission Overhead expenses Claims Payment Provision for reserves *** Balance - Surplus for distribution as Bonus & Dividend

*** -Life insurance cos having guaranteed product have to make higher provision means = less surplus for distribution as BONUS in the current year

RISKS OF GUARNATEED RETURNS TO THE CUSTOMER

When Interest Rate comes down, in order to maintain


the rate, funds get invested at Higher Risk Instrument

Higher Returns may be paid at the cost of othersLeading to Unfair practices - Regulator will step in

Higher Assured Returns means Promoters may need to


pump in additional money. ( CanBank MF Schemes, MIPs of UTI etc..)