The recent upheavals in the stock market have not even spared the unit linked insurance plans being offered by insurance companies. To take a full complete view of this situation IRDA has decided to seek a detailed evaluation on the kind of damage done by the present financial turmoil on the performance of these equity linked insurance funds. By this exercise IRDA attempts to visualize the damage caused to the stake of the investors and also gauge the margin by which the subsequent sales of the ULIP’s have slipped.
This decision by IRDA was taken after its deliberation on the global financial meltdown and its subsequent repercussions on the Indian insurance industry. If the damage found is of a higher gravity then one of the remedies which could be suggested would be to prescribe a minimum share of business from traditional policies in the overall portfolio of these life insurance companies. Traditional insurance companies are oriented towards providing protection and are aptly regulated. They majorly invest in government securities which are comparatively safer and risk free. Presently, insurance companies have full complete freedom to sell either ULIP’s or traditional insurance policies or a mix of both of these plans.
Traditional insurance plans are generally seen as a long term saving investment option while on the other hand ULIPs provide the investor to choose a mix of investments for himself which he deems to be best. the other option which could be adopted by IRDA could be to fix a ceiling on the amount that can be invested by the investor in equity funds. The drastic dip in the net asset value of some of these funds in the wake of the present conditions have proved to be a major concern for the regulators who fear that it could make the life insurance business highly unstable and insecure.
ULIP’s are popular investment tools with the investor which provide the investor the opportunity to invest in the market and at the same time get a good substantial life cover. A part of the premium deposited by the insurer goes in to government securities while the other is invested by him in the market. The risks associated with investments are entirely borne by the policy holder who also reaps benefit from an upsurge in the price of the net asset values.
Tags: IRDA, ULIP
The ongoing race for the US presidential office is taking place at a time when then country is going through its worst economic slump post the Great Depression. The common US citizen is now keenly hearing to as to what these candidates have in store for them which could provide them some relief and respite from the present day turbulence. Amongst other major announcements the one waited with most keen interest was the take of both the candidates on the health care plans they wish to offer to the American population. It has been reported that about 47 million American population have no health insurance backing their health requirements and there is a fear that many more millions could join this band wagon in the wake of them loosing or changing jobs as a consequence of the present financial turmoil wrecking the US shores. I understand that both Senator Barak Obama and John Mc Cain have a different take when the health plans endorsed by the candidates are viewed and understood.
If Senator Obama has his way then in an effort to expand the employer based health insurance network it would be made mandatory for the companies to offer health insurance packages for their employees and in the absence of compliance to this rule they will have to pay a tax to the government with the motive of helping the government to cover the insurance needs of the uninsured. The employees who are not covered under any insurance plan by the employee can hence buy a policy from a pre defined list of government approved health insurance plans. Also the costs associated with these health insurance package could see a major trimming down to make them all the more popular and affordable to all. Also, he aims to cover all kids and children below the age of 18 to be covered under their parents insurance plans or under any other such insurance product which I think is a positive decision.
While on the other hand Senator Mc Cain proposes people to buy their own health insurance plans and for this purpose would provide every American family a $5,000 tax credit to allow them to purchase the best suiting health insurance policy for themselves and their family. This very well indicates to me the aim of the two candidates where on one side Obama is all up for an employer based health insurance facility on the other hand Senator John Mc Cain wants America to purchase the same from the private insurance players operating in the market.
Tags: health care plans, mc cain, obama
If the talks doing the rounds are to be believed then the much talked about US financial rescue package could in turn result in a major shakeout of the nation’s banks. A new round of mergers is expected to be on the anvil as the treasury department is said to have allocated a chunk of the rescue package towards those banks and financial institutions that are keen and have shown willingness to buy their weaker banking rivals. This motive clearly outlines the agenda of the US government who is gearing up not only to stabilize the shaken economy but also to reshape it and to give it a new direction.
This inclination of the Treasury department towards mergers shows that the treasury is not interested in buttressing weaker banks and other such financial institutions but would rather drive towards their consolidation. The banking and the investment sector is as it is badly shaken up by the ongoing financial turmoil and there are plenty such players operating in the market who are willing and open to the idea of putting themselves on the selling block. The potential roadblock in this direction is the absence of well capitalized buyers.
This is where the Treasury department hopes to play a role by channelizing funds towards banks which are big institutions are have strong financial fundamentals strengthening their base and working. The government plans to allow access to funds at favorable rates to these strong players with the aim of encouraging them to expand. Though aimed to cover the entire banking and investment sector this plan is not expected to be rolled out on a first come first serve basis, rather in depth study and analysis will form the basis of organizational selection.
It is note worthy to mention that the Federal Reserve and the Federal Deposit Insurance Corporation have been hugely burdened in the recent times by having to come all out to save banking institutions like Wachovia. But some analysts have rightly questioned this thought by putting across the point that as to how does the government plan to exert control over the investments that it intends to pump into banks to see that the investment is used for the same purpose for which it was provided.
Tags: us banks merger
The ongoing financial crisis wrecking havoc on the US shores in undoubtedly the biggest financial calamity to hit the country since the great depression of 1929. The Wall Street investment giants have crumbled like a pack of cards and the story is not all that rosy with the countries banks too. The financial chaos reigning high in the country has considerably shaken its financial credentials and has not spared the global financial markets. The cost of rescuing these financial investment giants by the US Federal reserve amounts to an astronomical figure of close to a trillion dollars. Believe it or not this figure is almost equivalent to India’s national income. And what is more heartening to know is that the end to this financial turmoil does not seem to be anywhere in the near future. This situation has made economists and financial guru’s in India to take notice and stock up some immediate measures.
The RBI has been continuously pumping in money into the system to enhance liquidity in the market and the banks too have been borrowing easily under LAF which is the Liquidity Adjustment Facility but still liquidity has been drying up. A major factor amounting to this financial situation is the hard hitting taken by industrial economies world over which has subsequently reduced the demand for goods and services. What is noteworthy is the fact that India’s GDP growth estimate for the current fiscal year has been downgraded from 8% to 7.4%. The enormous caution exercised by the RBI and its policies relating to glowing slow on opening new complex financial products has immensely helped in insulating India from drastic effects from the financial crisis.
Taking lessons from the sub prime mortgage and investment crisis which has wrecked the US fundamentals the approach of the RBI was completely cautious on all fronts including permitting hedge funds to invest in Indian equities and real estate, allowing greater FDI in the banking sector or at the same time allowing excessive capital inflows. The present churnings in the global financial sector mainly the investment and banking sector has exposed chinks in the Indian financial sector too in the form of inadequacies within the system to contain losses mainly because of the absence of a healthy and effective risk assessment and management system and to absorb the losses there should be the presence of a strong capital base.
Tags: indian crisis
Strengthening rumors of Prudential’s keen interest for bidding for the stricken US insurance giant AIG it is reported that Prudential has appointed Credit Sussie to assist them in making the decision on promising acquisitions that that could make from the insurance company AIG that has already been bailed twice by the US Federal Reserve. Looking at the present market conditions it is highly unlikely that Prudential will raise any money for any kind of purchases using its rights issue and therefore Credit Sussie has been given the responsibility to talk to potential investors on behalf of Prudential. It is worth noting that it is the Asia operation of the insurance mogul AIG excluding Japan that Prudential is most interested to acquire. The amount it expects to collect from subsequent investors to help realize this goal is about 15 billion US Dollars. Prudential seeks the investors to take a 20% stake in the company and subsequently help the company to finance its bid for the insurance giant. It has been since long that Prudential has been eyeing the emerging insurance market in Asia as a part of its global expansion plan.
Though the insurance sector has seen a drastic slip in its growth pattern in the recent times this deal never the less would come as a big boost Prudential. The recent financial tsunami has spared no one and has caused significant damage to the share prices of Prudential and other players operating in the same segment too. The yet to be named potential investor funds for the insurance bid reported to be hailing from China and Middle East are expected to pump into prudential funds in the tune of 1.2 billion Pounds. But Prudential is not the only company showing its keenness towards acquiring AIG. It is reported that the other potential buyers in the foray include French insurance giants AXA and the ING unit of Holland.
It was only last month that the US government had to come to the rescue of the world largest Insurance company AIG with a $ 85 billion bailout package which was subsequently raised to $123 billion. It is reported that AIG is keen on retaining its US property and operations along with its foreign general insurance businesses and an ownership interest in its foreign life operations while is keen to sell the rest off.
Tags: aig, prudential
In times when uncertainty looms large over global financial markets there is an interesting observation that I would like to point out. The bloodbath which has taken its toll on almost all big, reputed and established Wall Street institutions have strangely left the smaller, lesser known firms untouched and in a position where surprisingly it is expected that they will not only survive but will also lead towards prosperity.
The large firms had to bear the brunt as they were suffered from heavy leverage as against the small firms which take very less risk because in reality it is the money of the partners of the firm which fuel and fund the business. It is generally observed that in smaller firms the owners of the firm play the role of the officers as well. This puts their own money at stake when they operate and thereby are careful with the operations relating to the business like the underwriting process undertaken for the transactions etc.
This proves out to be the major reason for these smaller entities dwelling on Wall Street to do well. They have been seen generating profits even in such turbulent times and have gained a significant share in the market. I would mark this current scenario as the biggest opportunity ever seen by these firms since they have no debts or burdens to carry forward and are now spoilt for choices looking at the huge number of brokers and bankers available in the market for recruitment.
Also worth consideration is the act of acquisition of other smaller firms by them with the aim of expanding their reach in the financial market. But the recent spate of reforms I believe is a cause of worry amongst the community of these small firms. The lawmakers will have to take into consideration that these proposed reforms follow a tiered system so that the small firms do not end up on the receiving end owing to their small size and limited capabilities to do business.
Tags: small firms, wall street