Aila causes Rs 500-cr crop damage, but insurers to pay only Rs 7 lakh

Cyclonic storm Aila, which ravaged the eastern part of the country in the last week of May, has caused massive agricultural damage. But the claims under weather-based crop insurance may not exceed Rs 7 lakh.

According to informal estimates by government officials, the total damage in the agriculture and horticulture sectors is pegged at around Rs 500 crore.

Damages in the horticulture segment alone could be around Rs 300 crore, a senior government official confirmed.

State-run Agriculture Insurance Co (AIC), ICICI Lombard General Insurance and Iffco-Tokio are the three companies which offer weatherbased crop insurance in West Bengal.

However, the entire payout of Rs 7 lakh is likely to be made by AIC in two subdivisions (Contai and Egra) of the East Medinipore district, according to company officials.

Even though two of the worst-affected areas in North 24-Parganas (Bashirhat and Baduria) are covered under AIC's weather insurance scheme, there would not be any payout. Reason: The huge damage in the area was caused more by wind and tides, than rainfall. According to AIC parameters, weather-based crop insurance claims are given in areas with over 75 mm of rainfall, whereas in the North 24Parganas, the rainfall recorded by the meteorological department was only 62 mm.

In case of ICICI Lombard, the period of crop coverage expired on May 15, a little more than a week before Aila hit the state.

In case of Iffco-Tokio too, there were hardly any claims, said sources. No comment was offered by the company on the issue.

Also, in areas where AIC provides the facility, crop damage was the highest in case of sesame seeds, which like horticulture products, is not generally covered under weather insurance.

In most farms, paddy was kept in the field after being harvested, and insurance companies provide cover only for standing crops. As a result, a major portion of the summer season paddy crop was damaged in the fields, but was not covered under insurance.

At present, agriculture insurance is mostly based on area approach, like under the National Agriculture Insurance Scheme (NAIS), where payouts are made on yields in defined areas (unit area of insurance).

In view of long delays in claim settlement under NAIS, the government in 2003 had launched the Weather-Based Crop Insurance Scheme (WBCIS) on a pilot basis, giving insurance cover against losses incurred due to unfavourable weather conditions such as deficit, excess or untimely rainfall and variations in temperature. Risk firms escape payouts on technicalities

RIDING ON RIDERS

* State-run Agriculture Insurance Co (AIC), ICICI Lombard General Insurance and Iffco-Tokio offer weather-based crop insurance in West Bengal

* According to AIC parameters, claims are given in areas with over 75 mm of rainfall. North 24-Parganas recorded a rainfall of only 62 mm, thus no compensation

* For ICICI Lombard, the period of crop coverage expired on May 15, a little more than a week before Aila hit the state

* In case of Iffco-Tokio too, there were hardly any claims

Rising life expectancy to help lower insurance premium

Life insurance premium rates are likely to drop over the next few months owing to longer life expectancy, with a new mortality and morbidity table expected to be in place by the fourth quarter of 2009 to replace the current one, which is of 1994-96 vintage.

The new rates will include the claim experience of individual companies and will be based on 2006-08 data.

The Mortality and Morbidity Investigating Centre (MMIC), an affiliate of the Institute of Actuaries of India (IAI), plans to publish the mortality table by October. The institute has been working on the table for the last six months.

Data and statistics are currently being collected from various insurance companies though a handful of large players, including government-owned Life Insurance Corporation of India, are yet to submit data, said IAI President G NAgarwal.

With the risk perception falling, premium rates, which are based on mortality rates, are expected to fall as well. "Over the years, life expectancy has increased, mortality has come down drastically and this gives a room for the rates to drop," said Agarwal, who is the chief actuary of Future Generali India Life Insurance Company, a joint venture between the Future Group and Italy's Generali.

Agarwal said over the last 12 or 15 years, according to data available so far, mortality rates have come down by 25 to 30 per cent in the higher age brackets, which may translate into a reduction of 15 to 20 per cent in certain segments.

Five mutual fund houses get ready to start business

More may follow as market indices gain 80 per cent

The mutual fund industry has started attracting new players after the rebound in the stock markets. Motilal Oswal, ASK Investment Holding, Axis Bank, Indiabulls, Mahindra and Mahindra Financial Services have applied to the Securities and Exchange Board of India (Sebi) to start fund houses and have already received in-principle approval. And sources familiar with the developments said many more names could follow.

This is a sea change from the situation just six months ago when the industry was in consolidation mode. Example: Goldman Sachs shelved its plan to start a fund house and Lotus Mutual Fund got sold.

That's almost a distant memory now with the prime stock market indices going up by over 80 per cent in the last two-anda-half months. The good news for those getting ready to start asset management companies (AMCs) is that there is renewed interest in mutual funds.

In May, average assets under management of the industry rose by 15 per cent to Rs 638,000 crore, the highest ever. Market leader Reliance Capital AMC's assets increased to Rs 102,000 crore.

Even new fund offerings have begun to do well. For instance, ICICI Prudential's Target Returns fund collected Rs 800 crore.

Among the new players, Japan's Shinsei Bank has already got approval from Sebi to start its mutual fund business. Rakesh Jhunjhunwala, the well-known investor, has a15 per cent stake in the AMC. Shinsei is planning to start business in three months with equity, liquid and bond funds.

Piyush Surana, chief executive officer of Shinsei Mutual Fund, said, "The current environment in India is conducive to launching a new asset management business. The next surge in investments in mutual funds, which will be brought about by a sustained rise in the markets, will increase penetration levels for the industry." Other fund managers, who are waiting for a final clearance, have got busy in product development. But they are confident about India's longterm potential because mutual fund penetration is still small at just 4 per cent of the total population.

Nitin Rakesh, chief executive officer, Motilal Oswal Mutual Fund, said: "We are already offering securities trading, commodities trading, private equity, investment banking, venture capital and advice-based portfolio management services to our customers. This AMC venture completes our portfolio." Last year, the mutual fund industry went through a lean period because inflows dried up in both equities and, in the latter half, fixed maturity plans (FMPs). There were, in fact, outflows of almost Rs 100,000 crore in FMPs in the October to December 2008 period.

The outflows, along with the erosion in the value of equities, led to apprehensions about quite afew fund houses because many of them were over-dependent on short-term debt funds and liquid funds.

The market regulator, Sebi, was also concerned about the stress levels in the industry. And there were talks of raising the net worth of fund houses from Rs 10 crore to Rs 50 crore. However, no decision has been made till now.

Hemant Rustagi, chief executive officer, Wiseinvest Advisors, said: "Setting up an AMC business does not depend on the market cycle. Fund houses are looking to tap the high savings rate of our population. But one needs to have deep pockets to survive in the industry as it takes six or seven years to break even."

A layman's guids to the New Pension Scheme

On May 1, 2009, the Pension Fund and Regulatory Development Authority (PFRDA) threw open the New Pension Scheme (NPS) to all Indian citizens. Till then, this pension scheme was available only to the central and state government employees.

• What is NPS?
  
  
  NPS is a defined contribution pension scheme open to any Indian citizen between the age of 18 and 55.
• What is a defined contribution scheme?
  
  
  In a defined contribution scheme, the individual invests a certain amount in a pension scheme till he retires. At retirement, he is allowed to either withdraw the money that has accumulated or buy an immediate annuity from an insurance company to generate a regular income, or do both. The option he exercises depends on the way the pension scheme is structured. Buying an immediate annuity assures a regular payment from the insurance company. This payment can be monthly, once every three months, once every six months or once every year.
• How much do you need to invest?
  
  
  The minimum amount that needs to be invested per contribution is Rs 500. A minimum of four contributions need to be made per year. Other than this, a minimum of Rs 6,000 needs to be invested per year. This means those who plan to invest the minimum amount of Rs 500 need to make 12 contributions per year. There are no upper limits on the amount of money that can be invested as well as the number of contributions that can be made. You need to decide on the frequency of your contributions across the year, at your convenience. The investments can be made through cash, local cheque or a demand draft at the chosen point of presence.
• How will the money be invested?
  
  
  The money you invest in NPS will be managed by professional fund managers. Currently, you have the choice of picking up one of the following six fund managers:
  ICICI Prudential Pension Management
  IDFC Pension Fund Management
  Kotak Mahindra Pension Fund
  Reliance Capital Pension Fund
  SBI Pension Funds
  UTI Retirement Solutions
  It is important to remember that at the point of filling up the form, the choice of one of these six pension fund mangers needs to be indicated. The application will not be accepted if this choice is not made.
• Can you switch fund managers, if you are not happy with the current fund manager?
  
  
  Yes, you can switch fund managers. PFRDA, the pension fund regulator, will declare the value of your investment every year in April. At that point of time, if you are not satisfied with the performance of your fund manager, you can switch to another fund manager between May 1 and May 15.
• Will the money be invested in debt or equity?
  
  
  The NPS currently offers three investment funds to choose from:
  
  
  Asset class E: Investments will be made in thirty stocks that constitute the Bombay Stock Exchange Sensex or the fifty stocks that constitute the National Stock Exchange Nifty. The investments in stocks will be made in the same proportion as the weightage of the stock in the particular index. Reliance Industries currently has around 17% weightage in the Sensex, so if Rs 100 is being invested in Asset Class E, that would mean Rs 17 would be invested in the stocks of Reliance Industries.
  
  
  Asset class G: Investments will be made in debt securities issued by the central as well as the state governments.
  
  
  Asset class C: Investments will primarily be made in debt securities issued by entities other than the state and central government, liquid funds of mutual funds, fixed deposits of banks etc.
  At the time of filling the form, you need to indicate what proportion of your money should be invested in which asset class. You can choose to invest a maximum of 50% in the equity option, i.e. asset class E and a maximum of 100% in the other two options.
• What if you do not have enough expertise to exercise a choice?
  
  
  In case you decide not to exercise any choice regarding the asset allocation, the Lifecycle Fund of NPS kicks in. In this case, your age will decide what fraction of your investment is invested in which asset class and as you come become older, your exposure to the equity class will keep coming down.
  
  
  In fact, for the risk averse, it might be a good option to choose the Lifecycle option, given that exposure to equity decreases as the age of retirement nears. But NPS gives me only a maximum of 50% exposure to equity... Many so-called experts have gone to town criticizing this aspect. But anybody who has been through the stock market crash last year will agree that betting all investment on equity isn't a great idea, always, especially when you are saving for retirement. PFRDA has also done a great job by limiting investments only in Sensex and Nifty stocks. This is an extremely passive form of investment and has taken active fund management by fund managers totally out of the equation. What this ensures is that you will get a rate of return that is equal to the broader market. You may not get a rate of return that is better than the overall market, but at the same time you will not get a rate of return that is much worse than the overall market.
• What if you default on payment?
  
  
  For every year of default you will have to pay a penalty of Rs 100. This will have to paid along with the minimum amount (i.e. Rs 500) that would be needed to reactivate the account. Also during the period you do not pay, NPS will keep charging its expenses against your accumulated corpus. If you continue to default, the account will be closed as and when the value of the account falls to zero.
• Facility of Withdrawing money from the account?
  
  
  The NPS offers two accounts: tier I and tier II. Currently only tier I account is available. This is a non-withdraw able account and investments in this keep accumulating till you turn 60. Withdrawal is allowed only in case of death, critical illness or if you are building or buying your first house. In case of death the nominee can get 100% of NPS wealth in a lump sum. He can however continue with the NPS in case he wishes to.
  
  
  Tier II account, on the other hand, will be a voluntary savings account which will allow you to withdraw money as and when you want to. This option is currently not available.
• Will you get a tax deduction for the investment?
  
  
  Yes, under Section 80CCD of the Income Tax Act investments of up to Rs 1 lakh in the NPS can be claimed as tax deductions. Readers should remember that this Rs 1 lakh limit is not over and above the Rs 1 lakh limit available under Section 80C. In fact, the combined limit of investments made under Section 80C, 80CCD and section 80CCC (for investments made into pension plans of insurance companies) is Rs 1 lakh.
• What happens at retirement?
  
  
  NPS by default sets the retirement age at 60. Once you attain that age, you can use the money that has accumulated to generate a regular pension for yourself. In order to do this, you have to compulsorily buy immediate annuity from a life insurance company with 40% of the money that has accumulated. As explained at the beginning, buying an immediate annuity will assure a regular payment for you. Since a minimum of 40% needs to be used to buy an immediate annuity, a maximum of 60% of the money accumulated can be withdrawn. However, unlike other tax-saving instruments like Public Provident Fund (PPF) and Employees' Provident Fund (EPF), wherein the amount at maturity is tax-free, in case of NPS this amount is taxable.
  
  
  This is one negative feature of NPS. However, the PFRDA, which is running the NPS, has approached the government to given NPS a tax treatment similar to that for PPF and EPF. Currently, the only way not to pay tax is to buy immediate annuities using the entire amount at maturity, which is not bad because you were anyway accumulating the corpus to generate a pension.
• What if you want to withdraw the accumulated amount before you turn 60?
  
  
  If you want to withdraw the accumulated amount before you turn 60, you need to compulsorily buy immediate annuity with 80% of the money that has accumulated. This is another negative feature of the scheme.
• What are the charges?
  
  
  This is where NPS wins hands down against all other modes of creating a corpus to generate income after retirement. The fund management charge of NPS is 0.0009% of the value of the investment, every year. In comparison, pension plans of insurance companies charge 0.75-1.75% as fund management charge, which is 800-2000 times higher. The other expenses charged are also very reasonable.
• Possibility of guaranteed rate of return?
  
  
  No return is guaranteed as it is in case of EPF and PPF. The amount of money you make is dependant on how well the fund managers chosen by you perform. But, the extremely low charges in NPS sure give it an edge over the pension plans of insurance companies.

LIC scans 200 firms for investment

Life Insurance Corporation of India (LIC), the country’s largest institutional investors, is scanning around 200 companies on a daily basis for possible investments, a senior executive said on Wednesday.

LIC managing director D K Mehrotra told reporters on the sidelines of a software launch function that the public sector insurer would look at the the company's credentials and also the industry segments before investing. Its in-house research team was constantly giving feedback on the companies and the industry segments, which were performing well.

In line with its investment plan for the current financial year, LIC was expected to step up equity investment by 25 per cent to around Rs 50,000 crore in equities, as against Rs 40,300 crore during 2008-09.

With the Insurance Regulatory and Development Authority (Irda) asking the life insurer to ensure that there were no fresh companies where LIC’s exposure breached the 10 per cent ceiling, the company was on the lookout for new stocks.

Mehrotra also said that the public sector insurance company would put about 15 per cent of its investable funds in the infrastructure sector though he did not disclose any numbers. "With infrastructure showing signs of recovery, LIC would not shy away from investing in the sector," he said.

"We will not take a short-term call on investments. We are looking for a long-term relationship,'' Mehrotra said, adding that the company would exercise caution in investing in real estate projects in view of the prevailing market conditions.

LIC’s total premium income, which includes renewal premium and first premium income, is expected to be over Rs 1,75,000 crore, around 12 per cent higher than last year’s level of around Rs 1,55,700 crore. The company expected a 4.5 per cent increase in new premium during the current financial year to Rs 50,000 crore, as against Rs 47,828 crore last year.

But if trends over the last few months are anything to go by, LIC would exceed the target with ease. Mehrotra said that over the last two months, premium from the sale of new policies has increased by about 40 per cent. According to the latest Irda data, LIC’s first premium income went up by 69.33 per cent to Rs 2,113.11 crore during April, as against a 10 per cent fall during the last financial year.

Source:business-standard

Wipro bags LIC's 5-yr IT outsourcing deal

In another affirmation of its growing clout in the domestic market, Wipro Infotech, the India and Middle East information technology services business of Wipro Ltd, has clinched an IT outsourcing deal from Life Insurance Corporation (LIC) by piping its large Indian rivals

The contract, which involves upgrade of LIC’s front-end IT application programmes (FEAP) to make these accessible through the web, is said to be worth about Rs 200 crore, and will be done over five years, a highly-placed source told Business Standard. By making applications accessible through the web, LIC expects to reduce the load on its servers and improve the processing time.

Sources said LIC expected to drastically reduce the cost of running the applications by making processing happen on the desktop.

It is understood that most large Indian IT outsourcing companies, including TCS, Infosys and L&T Infotech, had competed for the contract. It was considered prestigious, not because of its size but because it involved a prestigious public sector organisation like LIC.

Anand Sankaran, head of the India and Middle East business of Wipro, said, “Discussions are still under way and therefore it won’t be possible for me to firmly comment on this.”

Analysts say the recent deals that Wipro has won, coupled with the strong pipeline the company has in the domestic market, is expected to make it the second largest player in the domestic market after IBM, which earns over $2 billion revenue from India. Sources in Wipro say that if one discounts IBM’s product revenues in India, the gap between it and Wipro’s services business in India is only about 10 per cent.

LIC is an existing customer of Wipro, which has implemented all the entire data warehousing for the insurance major. In the financial services sector in India, HDFC Bank and Dena Bank are two large customers.

Wipro has become aggressive in the domestic market as deal flows from the US and Europe have waned during the past two quarters in the wake of the global financial meltdown. Last quarter, Wipro won a six-and-a-half year mega outsourcing e-governance deal from Employees State Insurance Corporation (ESIC), beating TCS and Infosys. The deal, valued at Rs 1,182 crore, involves modernisation and automation of the entire healthcare benefits administration set-up of ESIC.

Recently, the company bagged a nine-year contract from telecom services provider Unitech Wireless to set up and manage the company’s entire IT applications. The deal, said to be worth over Rs 2,200 crore, is the largest-ever win by the company in the Indian market. It is also understood to be in the race for a large outsourcing deal from Swan Telecom.

The price quoted by Wipro in most of the recent bids is said to be below industry standards. For instance, the company’s quote of Rs 1,182 crore for the ESIC bid was much lower than TCS’ Rs 1,530 crore and Infosys’ Rs 1,791 crore.

“Wipro was always present in India through Wipro Infotech and is now looking towards the domestic market due to the pressure from other geographies, which is helping them to win significant deals in the domestic market,” said Sabyasachi Satpathy, co-founder and director of Mindplex Consulting. Wipro derives about 22 per cent of the IT business’ revenue from India.

Infocrossing gets $34 million contract extension from Sunoco

Wipro subsidiary Infocrossing has gained a $34-million contract extension for four years from petrochemical company Sunoco, according to a Wipro release on Wednesday.

Infocrossing has been a Sunoco vendor since 1996, providing managed infrastructure outsourcing services, including servers, storage and network devices, to the latter.

Source:business-standard