LIC agents earn Rs 14,220 cr in Apr-Dec 2019, twice as much as MF sellers

Agents selling products of Life Insurance Corporation of India (LIC) have garnered Rs 14,220 crore in gross commissions in first nine months of 2019-2020, which is 1.8-times of what the mutual fund (MF) distributors made for the entire FY19.

According to disclosures made by LIC, commissions paid on first-year premiums grew at a sharp pace of 46 per cent year-on-year in the December quarter. The first year premiums for December quarter stood at Rs 2,977 crore.

According to industry participants, the scrapping of upfront commissions by the Securities and Exchange Board of India (Sebi) -- which incentivised MF distributors in the first year of selling MF products -- has tilted the field in favour of insurers.

"Insurance companies continue to offer high commission rates of 30-70 per cent to agents on first-year premiums. This is likely to give further boost to unit-linked insurance product, while MFs could lose ground due to lower incentives after regulatory changes," said chief executive officer of a fund house, requesting anonymity.

The current payouts offered to LIC agents have grown by 11 per cent, compared to the payouts made in first nine months of previous financial year. On the other hand, commissions offered to MF distributors have contracted by seven per cent in 2018-2019. The numbers for current fiscal will issued with a lag by the Association of Mutual Funds in India.

Industry players say there are concerns around viability of MF distribution, with Sebi putting curbs on upfront commissions for systematic investment plans or SIPs, which is a popular mode among smaller distributors and small-ticket investors.

Sebi's new norms allow upfront commission for SIPs, but only up to Rs 3,000 per scheme and only for first-time MF investors.

"The lack of incentives is pushing MF distributors to consider switching to insurance products. Scrapping of upfront commission is making it difficult for individual players to cover initial costs of distribution," said Srikanth Matrubai, chief executive officer of Sri Kavi Wealth.

MF participants say that client acquisition costs tend to be higher in the industry, and can these can only be absorbed after a decent asset size is built over a longer period.

The number of new registrations by individuals for MF distribution has been on a declining trend. The MF industry has so far added 7,223 new individual distributors in the current fiscal (between April, 2019-January,2020), which is half of the additions seen in the corresponding period in previous fiscal.

In September 2018, Sebi introduced new slabs for charging total expense ratio (TER), which brought down the maximum ceiling on TER to 2.25 per cent, from 2.5 per cent.

According to industry participants, larger fund houses passed the bulk of these cuts onto the distributors.

LIC IPO: Staff union to hold walkout strike in protests against move

The employees' union of Life Insurance Corporation (LIC) will stage an hour-long walk-out strike on Tuesday to protest against the government's move to sell its stake in the state-run insurer through an initial public offering.

The walk-out will take place at all offices of the insurance behemoth across the country.

In the Union Budget announced on Saturday, Finance Minister Nirmala Sitharaman announced that the government, which holds 100 per cent stake in LIC, will sell a part of its holding through an initial public offering (IPO).

"As an immediate reaction to the proposal to list LIC, All India LIC Employees Federation will hold one-hour walk-out strike on February 4," the union said in a statement.

Listing of LIC is against national interest as over the years it has been playing a pivotal role in nation building activities, it said.

On a capital base of Rs 5 crore, the union said LIC's valuation surplus wasRs 53,211.91 crore, life fund stood at Rs28.28 lakh crore and asset under management over Rs 31.11 lakh crore at the end of FY19.

Being one of the biggest financial institutions of the country, any move to privatise LIC will shake the confidence of the common man and will be an affront to our financial sovereignty. The very purpose of LIC to provide insurance coverage to socially and economically backward class at a reasonable cost will be defeated and motto will change from service to profit, the statement said.

Minister of State for Finance Anurag Thakur said the listing of LIC will help bring in greater transparency, public participation and also deepen the equity market.

Government came out with the idea (LIC listing). The details will follow and it will be in the interest of LIC and its policyholders. Interest of LIC and policyholders will be safeguarded, Thakur recently told PTI.

Finance secretary Rajiv Kumar on Sunday said the listing may be done in the second half of the next financial year.

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Listing of insurance behemoth Life Insurance Corporation (LIC) may be done in the second half of the next financial year, Finance Secretary Rajiv Kumar said on Sunday.

Finance Minister Nirmala Sitharaman while presenting the Budget 2020-21 on Saturday announced stake sale in LIC through an initial public offer in the next financial year.

There are a number of processes which have to be followed for the listing and some legislative changes would also be required for the listing of LIC, Kumar said.

"We will follow the extant procedure for listing and for other things including the legislative changes it requires in consultation with the Ministry of Law and that process we already started ... listing in the second half of FY21 seems logical," he said.

Listing of LIC will bring in greater transparency, public participation and also deepen the equity market, he told PTI in an interaction.

Asked about the quantum of dilution, Kumar said, it could be 10 per cent but no decision has been taken so far.

The government aims to garner Rs 90,000 crore from the listing of LIC and stake dilution in IDBI Bank in the next fiscal out of total disinvestment target of Rs 2.10 lakh crore.

The government currently owns 100 per cent in LIC, while it holds around a 46.5 per cent stake in IDBI Bank.

"Listing of companies on stock exchanges discipline a company and provides access to financial markets and unlocks its value.

It also gives opportunity for retail investors to participate in the wealth so created. The government now proposes to sell a part of its holding in LIC by way of Initial Public Offer (IPO)," the Finance Minister had said in her Budget speech.

Market participants are quite bullish about LIC and said it could be "IPO of the decade" akin to the Saudi Aramco listing.

The 60-year-old state-owned firm, LIC, is the country's largest insurer, controlling more than 70 per cent of the market share. The insurer has a market share of 76.28 per cent in number of policies and 71 per cent in first-year premiums.

LIC has many subsidiaries including IDBI Bank. It acquired controlling stake in IDBI Bank last year.

LIC listing could come in second half of FY21, says Finance Secretary

Listing of insurance behemoth Life Insurance Corporation (LIC) may be done in the second half of the next financial year, Finance Secretary Rajiv Kumar said on Sunday.

Finance Minister Nirmala Sitharaman while presenting the Budget 2020-21 on Saturday announced stake sale in LIC through an initial public offer in the next financial year.

There are a number of processes which have to be followed for the listing and some legislative changes would also be required for the listing of LIC, Kumar said.

"We will follow the extant procedure for listing and for other things including the legislative changes it requires in consultation with the Ministry of Law and that process we already started ... listing in the second half of FY21 seems logical," he said.

Listing of LIC will bring in greater transparency, public participation and also deepen the equity market, he told PTI in an interaction.

Asked about the quantum of dilution, Kumar said, it could be 10 per cent but no decision has been taken so far.

The government aims to garner Rs 90,000 crore from the listing of LIC and stake dilution in IDBI Bank in the next fiscal out of total disinvestment target of Rs 2.10 lakh crore.

The government currently owns 100 per cent in LIC, while it holds around a 46.5 per cent stake in IDBI Bank.

"Listing of companies on stock exchanges discipline a company and provides access to financial markets and unlocks its value.

It also gives opportunity for retail investors to participate in the wealth so created. The government now proposes to sell a part of its holding in LIC by way of Initial Public Offer (IPO)," the Finance Minister had said in her Budget speech.

Market participants are quite bullish about LIC and said it could be "IPO of the decade" akin to the Saudi Aramco listing.

The 60-year-old state-owned firm, LIC, is the country's largest insurer, controlling more than 70 per cent of the market share. The insurer has a market share of 76.28 per cent in number of policies and 71 per cent in first-year premiums.

LIC has many subsidiaries including IDBI Bank. It acquired controlling stake in IDBI Bank last year.

Budget 2020: LIC listing, IDBI Bank stake sale tops FM Sitharaman's agenda

The Budget has a slew of steps for the financial sector, including listing on the stock exchanges of Life Insurance Corporation (LIC). And, a fivefold increase in insurance cover for bank depositors, to Rs 500,000 each.

The finance minister said the government now proposed to sell part of its 100 per cent holding in LIC, via Initial Public Offer. The overall disinvestment target that was specified would essentially come from this listing of LIC and stake sale in IDBI Bank, said Rajiv Kumar, finance secretary, at a post-speech press conference. There are three listed life insurance companies — HDFC Life, SBI Life and ICICI Prudential Life Insurance — and three listed non-life insurance entities.

Kajal Gandhi, analyst at ICICI Direct, said being a state-owned entity, LIC is likely to see a valuation gap versus private players. At even 25-30 per cent of its assets under management, the company could be valued at Rs 8-10 trillion. Even a 10 per cent dilution will be difficult for the market to absorb in one go and the government might do this in stages.

The larger question is whether the government would continue with the sovereign guarantee which comes with full ownership. If it does, there would be questions on corporate governance. And, with listing, the government cannot fund various organisations like they have done so far with LIC, notes corporate lawyer Ashvin Parekh. “This (listing) is being talked about since 2005. The government was then concerned because LIC had issued a lot of guaranteed return products and there were doubts about its solvency. At that point, LIC had capital of Rs 5 crore and the government clarified that all the liabilities of the products issued by LIC had a sovereign guarantee. As of now, LIC has capital of Rs 200 crore,” Parekh said.

The government will also infuse Rs 6,950 crore for recapitalisation of the insurance companies it owns, to meet regulatory requirements. It has begun to consolidate the three state-owned non-life insurance companies and later list this consolidated entity. On bank recapitalisation, the minister noted what had been done over recent years to strengthen the system; there is a need now for more private capital, she said. Accordingly, it is proposed to sell the balance holding of the government in IDBI Bank to private, retail and institutional investors. Though there is no specific outlay for capital infusion in public sector banks, support would be extended if required, she added. To address liquidity constraints at non-banking finance companies (NBFCs) and housing finance companies, a mechanism will be devised, by guaranteeing securities floated for this purpose. After the previous Union Budget, it had formulated a partial credit guarantee scheme for NBFCs. The limit for NBFCs to be eligible for debt recovery under the SARFAESI Act of 2002 is proposed to be reduced from Rs 500 crore to asset size of Rs 100 crore or the loan size from the existing Rs 1 crore to Rs 5 million.

To strengthen cooperative banks, changes are proposed to the Banking Regulation Act, for more professionalism, enabling access to capital and improving governance and oversight.

Need cost-effective products for lower-middle class: LIC chairman

People below the poverty line require new forms of social security and should benefit from corporate social responsibility while there is a need for cost-effective and tax-exempt products for the lower-middle class, according to M R Kumar, chairman of state-owned Life Insurance Corporation (LIC).

Addressing the 21st C D Deshmukh memorial seminar on Friday at the National Insurance Academy, Pune, the LIC chairman said although life insurance had been one of the fastest-growing sectors in India since it opened up in 2001, the vast uninsured population and market potential put the achievement of insurance players in the shade.

India has the highest protection margin in the Asia Pacific region, at 92.2 per cent, which means for every $100 needed for protection, only $7.8 of saving and insurance is in place for a typical Indian household, leaving a mortality protection gap of $92.2.

For the life insurance industry to increase its business and cater for the under-penetrated market in India, banks need to sell insurance aggressively and leverage their customer base. Also, all insurance companies need to recruit agents extensively and provide them professional training, Kumar said.

Kumar pointed out despite the online channel for distributing products on company websites or web-aggregators for over a decade now, the mode is yet to see any traction.

However, banks, corporate agents, and brokers have managed to hold their own, contributing 14 per cent of the sale of new policies, which is still small considering the reach these entities have.

Effectively, individual agents do 80 per cent of the sales. There are 2.1 million individual agents as of now.

“We will require roughly 4 million people in the next couple of years,” Kumar added.

“Our sales of policies are not growing in number. We are selling more or less 20 million policies every year. We are targeting at least 20 per cent growth in the number of policies and reach 25 million by March this year,” Kumar said.

“The Reserve Bank of India has given us 12 years to pare our stake in IDBI Bank. And we have not heard anything from the Insurance Regulatory and Development Authority of India. We have always wanted to have a bank. We have had tie-ups with many banks. Now that we have a bank, it is working very well. IDBI Bank is leading this year among all banks with almost Rs 500 crore of premium collection for LIC in FY20.”

LIC pays Rs 2,611 cr dividend to govt, generated Rs 53,214.41 cr in 2018-19

State-owned LIC on Friday paid a dividend of Rs 2,610.74 crore to the government for financial year 2018-19.

"During the Financial Year 2018-2019, LIC generated a valuation surplus of Rs 53,214.41 crore, registering a growth of 9.9% over the previous year. It has a market share of 76.28% in number of policies and 71% in First year Premium as on 30.11.2019," the finance ministry said in a tweet.

LIC Chairman M R Kumar handed over the cheque to Finance Minister Nirmala Sitharaman in presence of Finance Secretary Rajiv Kumar and Special Secretary Debasish Panda.

"Union Finance Minister Smt. @nsitharaman receives a cheque of Rs 2,610.74 Crores from Shri M.R. Kumar, Chairman of LIC, as Government's share of surplus for Financial Year 2018-2019 here today. Shri Rajeev Kumar, Finance Secretary, was also present," the ministry said.