By Pooja Thakur - Jun 29, 2010
Indian insurers’ sales and margins will decline because of new rules on unit-linked insurance products that propose to cap charges and increase the investment period, UBS AG said.
The Insurance Regulatory and Development Authority capped some charges and raised the minimum investment period for unit- linked insurance plans to five years from three, it said in a statement late yesterday. The regulator also set 4.5 percent as the minimum annual guaranteed return for unit-linked pension plans. The new rules will be effective from Sept. 1.
“We believe these restrictive norms on ULIPs are likely to impact volumes adversely,” Vishal Goyal, an analyst at UBS, said in a note to clients yesterday. A “fresh cap on charges on lapsed and surrendered policies may impact margins adversely.”
The new rules could reduce investments in stocks by insurers, who helped boost the benchmark Sensitive Index 81 percent in 2009, making India the third-best performing equity market in Asia.
UBS expects volume growth for ULIPs to remain flat in the year ending March 31 because of the new rules, compared to an earlier forecast of a 10 percent to 15 percent growth rate. The brokerage cut valuations for insurance companies by between 5 percent and 10 percent.
The insurance regulator tightened the rules after a spat with the stocks regulator over the jurisdiction of unit-linked products. The Securities and Exchange Board of India on April 9 barred 14 life insurers from selling the products, saying they were like mutual fund plans and were sold without obtaining the approval of the stock market watchdog. The insurance regulator on April 10 countered the ban.
The government changed the rules on unit-linked plans on June 18, giving the insurance regulator the authority to govern the products. Unit-linked products are insurance plans sold by life insurers that invest the funds in equity and debt markets.
“We believe the revised guidelines on ULIPs will reduce insurance companies’ leeway in product design, negatively temper margins, increase capital requirements and delay the breakeven period,” Nischint Chawathe and Manish Karwa, analysts at Kotak Securities Ltd., said in a note to clients today.
To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net
From Bloomberg published on Jun 29, 2010
