Any ruling that advocates trail commissions or a ban on ULIPs will be significantly negative for the sector, the brokerage has said
ICICI Securities Ltd, a unit of ICICI Bank Ltd, has said that it believes the 'status quo' in the ongoing conflict between the insurance and stock market regulators will be difficult to maintain in light of the finance minister’s comment on the phasing out of the current ‘front load’ structure in the life insurance space.
"Such a structure, if implemented, will be significantly negative for the industry. The implementation would lead to sharp decline in sales and persistency in the short term, pressurise margins and have negative impact on valuations," ICICI Securities said in a research report.
On 10th April, market regulator Securities and Exchange Board of India (SEBI) banned 14 life insurance companies from raising funds through unit-linked insurance plans (ULIPs), without an approval from its side. Later on 14th April, SEBI came out with a second order that exempted the existing ULIP schemes of these 14 players from the ban. Yesterday, the market watchdog had moved the Supreme Court and some High Courts to guard against any ex-parte decision.
ICICI Securities said that valuations of life insurance entities will suffer significantly if either the products become ‘no-load’ or the SEBI stance on regulation of ULIPs is implemented, and it awaits further clarity on the issue and keep its estimates unchanged.
Given the already high capital infusions, dependence of about 30 lakh agents on commissions and high proportion of ULIPs in sales, the brokerage said that it believes it will be difficult to implement a ‘no-load’ structure. Any ruling that advocates trail commissions or a ban on ULIPs will be significantly negative for the sector, ICICI Securities added.
The brokerage said that within its insurance coverage universe, Aditya Birla Nuvo, Reliance Capital and Bajaj FinServ will be most impacted as the life insurance business accounts for a significant proportion of their valuations while the impact on SBI and HDFC will be limited as insurance contributes to a smaller proportion of their valuations.
Various banks and insurance companies are showing growing interest in the new revised reverse mortgage product, based on the bank- insurance company tie-up model
Banks like Punjab National Bank, Corporation Bank, Union Bank and Bank of India and insurance companies like the Life Insurance Corporation of India (LIC) and Reliance Life Insurance—among other companies—are showing interest in the reverse mortgage segment. This in turn would prove to be a boon for senior citizens.
Recently, the National Housing Bank (NHB) had announced a revised reverse mortgage scheme based on a bank-insurance company tie-up model. This new revised scheme would be beneficial both for senior citizens and the bank.
According to well-placed sources, most public sector banks have shown interest in this new model. However, not much has been heard from private sector banks on this segment.
“Banks are looking at tie-ups with Star Union Dai-ichi and also at other options of tie-ups with other insurance companies,” said a source, on the basis of anonymity. It is also likely that these banks may come up with different variants of the product based on the ‘bank-insurance’ company concept.
The first reverse mortgage product was introduced in May 2007, followed by a new scheme from NHB in 2009. The first product on the basis of the new revised model is being offered by Central Bank of India along with Star Union Dai-ichi.
The new model, (see here), not only offers better returns compared to the first version introduced in 2007, it also makes the product viable for banks. Earlier, banks had to bear 100% of the risks involved in the product. But with the new product, the risks are divided between the insurance company and the bank. Typically, the bank bears an ‘over-valued property’ risk, while the insurance company would bear the longevity risk (if the senior citizen lives exceptionally longer). This could be one of the main reasons for the growing interest from banks in the revised model.
Given the fact that the revised model offers lifetime annuity payments, growing competition in this segment will help senior citizens enjoy the best value for their homes.
The animation and entertainment company claims to be getting huge orders and securing work on big projects. However, a closer inspection reveals that all is not well with the organisation
This is another company which seems to be shrouded in secrecy and working behind closed doors. The company recently announced a big-ticket deal worth $82 million (around Rs370 crore) with UK-based BBC Films, for working on an animation film on Adolf Hitler. Close on the heels of this news, came another announcement that the promoter had increased stake in the company.
In a filing to the Bombay Stock Exchange (BSE), the company announced that it will become the largest animation company in Asia, once this film is completed. Currently, it claims to be the largest in South Asia.
Compact Disc India (CDI) announced recently that Seengal Capital Advisors Pvt Ltd, New Delhi, a promoter group company, had purchased 4,50,000 equity shares of the company. With this, the promoters' shareholding has increased from 20.01% to 24.69%. It is incredulous how the promoters are trying to play the company’s stock price in the markets.
It appears to be another dubious attempt of the promoters to drive up the stock price of the company. The shareholding pattern of the company (for December 2009) shows 80% of the shares as being held by the public. Our guess is that a large chunk of these are ‘benami’ holdings of insiders who offload shares once the price takes off.
An aggrieved investor, Santosh Mhamunkar, said, “After seeing the chairman’s interview on moneycontrol.com, I thought to myself, nobody could lie in such a big manner. After seeing its market capitalisation of Rs70 crore and new order (book) of about Rs400 crore, I thought that I had found a great deal. But its price movement was honest. The stock did not show any attraction for the next few days. Then came the news that the promoter had increased holding to 24% by open market purchase. But volumes on that very day itself accounted for less than 4% of the equity.”
Apparently the company also has other big projects in the pipeline. However, there is a dearth of information about the same. In an interview with CNBC TV18, the company’s chairman, Suresh Kumar, claimed that his company had 400 animators working with it and that CDI was also in the process of setting up a new animation studio in Chandigarh. Last year’s annual report also claims that is planning to set up a pre-production animation studio facility at Los Angeles.
CDI’s two animated feature films, ‘Eternal Love’ and ‘Futebol’ (supposedly with legendary Brazilian football king, Pele) are said to be progressing well. The demo-reels of the two feature films are slated to be ready by May 2010. Once the promos are ready, the company will enter into distribution agreements for worldwide territories. These films are slated to be released in theatres during 2011.
The company, under the first generation of management, had faced a lot of difficulties in the 1990s. It floated several companies and announced various projects which never happened to see the light of day. These included an LPG-related business, a hotel company and at least three more ventures. However, everything was kept in the dark. It seems the second generation of management currently in charge is only carrying its legacy forward.
Astonishingly, the company only features two directors on its board, Suresh Kumar and Rashmee Seengal—and does not have a single independent director. We wonder how the company is getting by the SEBI listing norms with such ease.
Last year too, the company had apparently held an annual general meeting (AGM) regarding which the shareholders of the company still have no clue as to when and what happened. A forum on the Internet was abuzz with discussions between unaware shareholders regarding the nature and whereabouts of the meeting. The company also failed to release the annual report after the AGM. The document was released on the website much later.
One of the comments read, “The AGM was so secretive that not even the company's corporate office was able to disclose the venue and time of meeting. My repeated calls to the company were handled at (the) reception, transferred to (the) investor cell and hung up. (The) company was not able to provide (the) annual report in advance. I still was at the company's registered office around 12 PM to be told that the meeting was already over. They did not have any answer as to why I never received the annual report and neither were they able to provide one then and there. There were no visible signs at the venue that the meeting ever took place.”
The comment goes on: “I was finally able to see the 17th annual general report on the company website only on 4th October evening. Till the date of meeting no communication about AGM date time and venue was on the company website. The company had not mentioned the venue and time of meeting in its communication to the BSE.”