Introduction to Insurance Industrey

CHAPTER 1 INTRODUCTION TO INDIAN INSURANCE INDUSTRY

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1.1 INSURANCE- AN INTRODUCTION
1.1.1 Meaning:
Insurance may be described as a social device to ensure protection of economic value of life and other assets. Under the plan of insurance, a large number of people associate themselves by sharing risks attached to individuals. The risks, which can be insured against, include fire, the perils of sea, death and accidents and burglary. Any risk contingent upon these, may be insured against at a premium commensurate with the risk involved. Thus, collective bearing of risk is insurance. Insurance = Collective Bearing of Risks

Insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events. The term "risk" is used to describe the possibility of adverse results flowing from any occurrence or the accidental happenings, which produce a monetary loss. Insurance is a pool in which a large number of people exposed to a similar risk make contributions to a common fund out of which the losses suffered by the unfortunate few, due to accidental events, are made good. The sharing of risk among large groups of people is the basis of insurance. The losses of an individual are distributed over a group of individuals. Insurance is nothing but a system of spreading the risk of one onto the shoulders of many. While it becomes somewhat impossible for a man to bear by himself 100% loss to his own property or interest arising out of an unforeseen contingency, Insurance is a method or process which distributes the burden of the loss on a number of persons within the group formed for this particular purpose.

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1.1.2 Definitions:
Fundamental Definition In the words of D.S. Hansell, ―Insurance accumulates contributions of all parties participating in the scheme.‖ Contractual Definition In the words of Justice Tindall, ―Insurance is a contract in which a sum of money is paid to the assured as consideration of insurer‘s incurring the risk of paying a large sum upon a given contingency‖.

1.1.3 Working of Insurance

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1.2 INDIAN INSURANCE INDUSTRY
The Insurance sector in India governed by Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and General Insurance Business (Nationalisation) Act, 1972, Insurance Regulatory and Development Authority (IRDA) Act, 1999 and other related Acts. With such a large population and the untapped market area of this population Insurance happens to be a very big opportunity in India. Today it stands as a business growing at the rate of 15-20 per cent annually. Together with banking services, it adds about 7 per cent to the country‘s GDP .In spite of all this growth the statistics of the penetration of the insurance in the country is very poor. Nearly 80% of Indian populations are without Life insurance cover and the Health insurance. This is an indicator that growth potential for the insurance sector is immense in India. It was due to this immense growth that the regulations were introduced in the insurance sector and in continuation ―Malhotra Committee” was constituted by the government in 1993 to examine the various aspects of the industry. The key element of the reform process was Participation of overseas insurance companies with 26% capital. Creating a more efficient and competitive financial system suitable for the requirements of the economy was the main idea behind this reform. Since then the insurance industry has gone through many sea changes .The competition LIC started facing from these companies were threatening to the existence of LIC .since the liberalization of the industry the insurance industry has never looked back and today stand as the one of the most competitive and exploring industry in India. The entry of the private players and the increased use of the new distribution are in the limelight today. The use of new distribution techniques and the IT tools has increased the scope of the industry in the longer run.

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1.3 A BRIEF HISTORY OF INSURANCE SECTOR
The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Some of the important milestones in the life insurance business in India are given in the table 1. Table 1: milestone’s in the life insurance business in India Year Milestones in the life insurance business in India

1912

The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business

1928

The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses

1938

Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public.

1956

245 Indian and foreign insurers and provident societies taken over by the central government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.

The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British. Some of the important milestones in the general insurance business in India are given in the table 2.

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Table 2: Milestone’s in the general insurance business in India Year Milestones in the general insurance business in India

1907

The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business

1957

General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices

1968

The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up.

1972

The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance business in India with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.

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1.4 INDIAN INSURANCE MARKET
Insurance has a long history in India. Life Insurance in its current form was introduced in 1818 when Oriental Life Insurance Company began its operations in India. General Insurance was however a comparatively late entrant in 1850 when Triton Insurance company set up its base in Kolkata. History of Insurance in India can be broadly bifurcated into three eras: a) Pre Nationalization b) Nationalization and c) Post Nationalization. Life Insurance was the first to be nationalized in 1956. Life Insurance Corporation of India was formed by consolidating the operations of various insurance companies. General Insurance followed suit and was nationalized in 1973. General Insurance Corporation of India was set up as the controlling body with New India, United India, National and Oriental as its subsidiaries. The process of opening up the insurance sector was initiated against the background of Economic Reform process which commenced from 1991. For this purpose Malhotra Committee was formed during this year who submitted their report in 1994 and Insurance Regulatory Development Act (IRDA) was passed in 1999. Resultantly Indian Insurance was opened for private companies and Private Insurance Company effectively started operations from 2001.

1.5 HOW BIG IS THE INSURANCE MARKET?
The insurance sector was opened up for private participation four years ago. For years now, the private players are active in the liberalized environment. The insurance market have witnessed dynamic changes which includes presence of a fairly large number of insurers both life and non-life segment. Most of the private insurance companies have formed joint venture partnering well recognized foreign players across the globe. There are now 29 insurance companies operating in the Indian market – 14 private life insurers, nine private non-life insurers and six public sector companies. With many more joint ventures in the offing, the insurance industry in India today stands at a crossroads as competition intensifies and companies prepare survival strategies in a detariffed scenario.
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There is pressure from both within the country and outside on the Government to increase the foreign direct investment (FDI) limit from the current 26% to 49%, which would help JV partners to bring in funds for expansion. There are opportunities in the pensions sector where regulations are being framed. Less than 10% of Indians above the age of 60 receive pensions. The IRDA has issued the first license for a standalone health company in the country as many more players wait to enter. The health insurance sector has tremendous growth potential, and as it matures and new players enter, product innovation and enhancement will increase. The deepening of the health database over time will also allow players to develop and price products for larger segments of society. Insurance is an Rs.400 billion business in India, and together with banking services adds about 7% to India‘s GDP. Gross premium collection is about 2% of GDP and has been growing by 15 - 20% per annum. India also has the highest number of life insurance policies in force in the world, and total investible funds with the LIC are almost 8% of GDP. Yet more than three-fourths of India's insurable population has no life insurance or pension cover. Health insurance of any kind is negligible and other forms of non-life insurance are much below international standards.

1.6 INDIAN SCENARIO OF INSURANCE INDUSTRY
Indian Economy is the 12th largest in the world with the GDP of $1.25 trillion and 3rd largest in the terms of purchasing power parity. With factors like 8-9 per cent economic growth, rising foreign exchange reserves, a booming capital market and rapidly expanding FDI inflows, it is on the hinge of ever expanding growth curve. Indians have tendency to invest in properties and gold followed by bank deposits. They selectively invest in shares but the percentage is very low i.e.4-5%. This in itself is an indicator that the growth potential for insurance sector is immense. The insurance business is growing at the rate of 15-20% per annum and presently is of the order of $47.9 billion.

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1.6.1 Market Share of private Life Insurers in India

(Source: www.freepress.in)
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If we see the market share of different private players in the financial year 2009, then from the above chart we can understand that ICICI Prudential is holding the maximum market share i.e. 21.6%. After that SBI Life and Bajaj Allianz is holding 14.8% and 13.2% respectively. Tata AIG is holding 3.3% of market share all over India.

1.6.2 MARKET SHARE OF INDIAN INSURANCE INDUSTRY
The introduction of private players in the industry has added value to the industry. The initiatives taken by the private players are very competitive and have given immense competition to the on time monopoly of the market LIC. Since the advent of the private players in the market the industry has seen new and innovative steps taken by the players in this sector. The new players have improved the service quality of the insurance. As a result LIC down the years have seen the declining phase in its career. The market share was distributed among the private players. Though LIC still holds the 75% of the insurance sector but the upcoming natures of these private players are enough to give more competition to LIC in the near future. LIC market share has decreased from 95% (2002-03) to 81 %( 2004-05).The following companies has the rest of the market share of the insurance industry. The following table shows the name of the non-life player in the market.

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Name of the Non-Life Insurance Company and their Shareholding pattern

Name of the Insurance Company
Agricultural Insurance Co Bajaj Allianz General Insurance Co. Ltd. Cholamandalam MS General Insurance Co. Ltd. Export Credit Guarantee Company HDFC Chubb General Insurance Co. Ltd. ICICI Lombard General Insurance Co. Ltd. IFFCO-Tokio General Insurance Co. Ltd. National Insurance Co. Ltd. New India Assurance Co. Ltd. Oriental Insurance Co. Ltd. Reliance General Insurance Co. Ltd. Royal Sundaram Alliance General Insurance Co. Ltd. Tata AIG General Insurance Co. Ltd. United India Insurance Co. Ltd.

Shareholding
Bank and Public Ins Co Privately Held Privately Held Public Sector Privately Held Privately Held Privately Held Public Sector Public Sector Public Sector Privately Held Privately Held Privately Held Public Sector

There are a total of 13 life insurance companies operating in India, of which one is a Public Sector Undertaking and the balance 12 are Private Sector Enterprises. List of Companies are indicated below:-

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Name of the Life Insurance Company and their Shareholding pattern
Name of the company Allianz Bajaj Life Insurance Co Aviva Life Insurance Birla Sun Life Insurance Co HDFC Standard Life Insurance Co ICICI Prudential Life Insurance Co ING Vysya Life Insurance Co. Life Insurance Corporation of India Max New York Life Insurance Co. MetLife Insurance Co. Om Kotak Mahindra Life Insurance Reliance insurance SBI Life Insurance Co TATA- AIG Life Insurance Company Nature of Holding Private Private Private Private Private Private Public Private Private Private Private Private Private

1.7 INSURANCE SECTOR REFORMS
In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R. N. Malhotra, was formed to evaluate the Indian insurance industry and recommend its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at ―creating a more
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efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms…‖ In 1994, the committee submitted the report and some of the key recommendations included: Structure
 

Government stake in the insurance Companies to be brought down to 50%. Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations.



All the insurance companies should be given greater freedom to operate.

Competition


Private Companies with a minimum paid up capital of Rs.1billion should be allowed to enter the industry.



No Company should deal in both Life and General Insurance through a single Entity.



Foreign companies may be allowed to enter the industry in collaboration with the domestic companies.

 

Postal Life Insurance should be allowed to operate in the rural market. Only one State Level Life Insurance Company should be allowed to operate in each state.

Regulatory Body
 

The Insurance Act should be changed. An Insurance Regulatory body should be set up.
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

Controller of Insurance should be made independent.

Investments


Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%.



GIC and its subsidiaries are not to hold more than 5% in any company.

Customer Service
  

LIC should pay interest on delays in payments beyond 30 days Insurance companies must be encouraged to set up unit linked pension plans. Computerization of operations and updating of technology to be carried out in the insurance industry.

Malhotra Committee also proposed setting up an independent regulatory body - The Insurance Regulatory and Development Authority (IRDA) to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives.

Insurance sector in India was liberalized in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. There is a 26 percent equity cap for foreign partners in an insurance company. There is a proposal to increase this limit to 49 percent. The opening up of the insurance sector has led to rapid growth of the sector. Presently, there are 16 life insurance companies and 15 non-life insurance companies in the market. The potential for growth of insurance industry in India is immense as nearly 80 per cent of Indian population is without life insurance cover while health insurance and non-life insurance continues to be well below international standards.

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1.8 INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA)
The Insurance Act, 1938 had provided for setting up of the Controller of Insurance to act as a strong and powerful supervisory and regulatory authority for insurance. Post nationalization, the role of Controller of Insurance diminished considerably in significance since the Government owned the insurance companies. The Insurance Regulatory and Development Authority Act, 1999 is an act to provide for the establishment of an Authority to protect the interests of holders of insurance policies, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 to end the monopoly of the Life Insurance Corporation of India (for life insurance business). Following are some of the powers, functions and duties of IRDA:
 Issue to the applicant a certificate of registration, renew, modify, withdraw,

suspend or cancel such registration.
 Specifying requisite qualifications, code of conduct and practical training for

intermediary or insurance intermediaries and agents.
 Specifying the code of conduct for surveyors and loss assessors.  Promoting efficiency in the conduct of insurance business.  Promoting efficiency in the conduct of insurance business; promoting and

regulating professional organizations connected with the insurance and reinsurance business.
 Specifying the percentage of life insurance business and general insurance

business to be undertaken by the insurer in the rural or social sector.


Supervising the functioning of the Tariff Advisory Committee;

 Exercising such other powers as may be prescribed.

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1.9 INSURANCE MARKET- PRESENT
The insurance sector was opened up for private participation four years ago. For years now, the private players are active in the liberalized environment. The insurance markets have witnessed dynamic changes because of Indian Insurers going global. Most of the private insurance companies have formed Joint ventures partnering well recognized foreign players across the globe. There are now 22 Life insurance companies operating in the Indian market. With many more joint ventures in the offing, the insurance industry in India today stands at a crossroads as competition intensifies and companies prepare survival strategies in a detariffed scenario. There is pressure from both within the country and outside on the Government to increase the foreign direct investment (FDI) limit from the current 26% to 49%, which would help Joint ventures partners to bring in funds for expansion. State Insurers Continue To Dominate: There may be room for many more players in a large underinsured market like India with a population of over one billion. But the reality is that the intense competition in the last five years has made it difficult for new entrants to keep pace with the leaders and thereby failing to make any impact in the market. Also as the private sector controls over 26.18% of the life insurance market a public sector companies still call the shots. The country‘s largest life insurer, Life Insurance Corporation of India (LIC), had a share of 64% in new business premium income in November 2009. ICICI Prudential Life Insurance Company continues to lead the private sector with a 9% market share in terms of fresh premium. Reaching Out To Customers: No doubt, the customer profile in the insurance industry is changing with the introduction of large number of divergent intermediaries such as brokers, corporate agents, and bancassurance. The industry now deals with customers who know what they want and when, and are more demanding in terms of more demanding in terms of better service and speedier responses.
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Intense Competition: In a de-tariffed environment, competition will manifest itself in prices, products, underwriting criteria, innovative sales methods and creditworthiness. Insurance companies will vie with each other to capture market share through better pricing and client segmentation. The battle has so far been fought in the big urban cities, but in the next few years, increased competition will drive insurers to rural and semiurban markets. Global Standards: While the world is eyeing India for growth and expansion, Indian companies are becoming increasingly world class. Take the case of LIC, which has set its sight on becoming a major global player following Rs. 280-crore investment from the Indian government. The company now operates in Mauritius, Fiji, the UK, Sri Lanka, and Nepal and will soon start operations in Saudi Arabia. It has already ventured into the African and Asia-Pacific regions in the year 2006. With life insurance premiums being just 2.5% of GDP, the opportunities in the Indian market place is immense. The next five years will be challenging but those that can build scale and market share will survive and prosper.

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CHAPTER 2 JOINT VENTURES: A BRIEF OVERVIEW

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2.1 WHAT IS A JOINT VENTURE?
Joint Venture companies are the most preferred form of corporate entities for Doing Business in India. There are no separate laws for joint ventures in India. The companies incorporated in India, even with up to 100% foreign equity, are treated the same as domestic companies. A Joint Venture may be any of the business entities available in India. A typical Joint Venture is where: 1. Two parties, (individuals or companies), incorporate a company in India. Business of one party is transferred to the company and as consideration for such transfer, shares are issued by the company and subscribed by that party. The other party subscribes for the shares in cash. 2. The above two parties subscribe to the shares of the joint venture company in agreed proportion, in cash, and start a new business. 3. Promoter shareholder of an existing Indian company and a third party, who/which may be individual/company, one of them non-resident or both residents, collaborate to jointly carry on the business of that company and its shares are taken by the said third party through payment in cash. Some practical aspects of formation of joint venture companies in India and the prerequisites which the parties should take into account are enumerated herein after. Foreign companies are also free to open branch offices in India. However, a branch of a foreign company attracts a higher rate of tax than a subsidiary or a joint venture company. The liability of the parent company is also greater in case of a branch office.

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2.2 DEVELOPING A JOINT VENTURE

(Source: 1000ventures.com)

2.3 GOVERNMENT APPROVALS FOR JOINT VENTURES
All the joint ventures in India require governmental approvals, if a foreign partner or an NRI or PIO partner is involved. The approval can be obtained from either from RBI or FIPB. In case, a joint venture is covered under automatic route, then the approval of Reserve bank of India is required. In other special cases, not covered under the automatic route, a special approval of FIPB is required. The Government has outlined 37 high priority areas covering most of the industrial sectors. Investment proposals involving up to 74% foreign equity in these areas receive automatic approval within two weeks. An application to the Reserve Bank of India is
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required. Please see Foreign Investment in India - Sector wise Guide for sector wise guidelines under automatic route. Besides the 37 high priority areas, automatic approval is available for 74% foreign equity holdings setting up international trading companies engaged primarily in export activities. Approval of foreign equity is not limited to 74% and to high priority industries. Greater than 74% of equity and areas outside the high priority list are open to investment, but government approval is required. For these greater equity investments or for areas of investment outside of high priority an application in the form FC (SIA) has to be filed with the Secretariat for Industrial Approvals. A response is given within 6 weeks. Full foreign ownership (100% equity) is readily allowed in power generation, coal washeries, electronics, Export Oriented Unit (EOU) or a unit in one of the Export Processing Zones ("EPZ's"). For major investment proposals or for those that do not fit within the existing policy parameters, there is the high-powered Foreign Investment Promotion Board ("FIPB"). The FIPB is located in the office of the Prime Minister and can provide single-window clearance to proposals in their totality without being restricted by any predetermined parameters. Foreign investment is also welcomed in many of infrastructure areas such as power, steel, coal, washeries, luxury railways, and telecommunications. The entire hydrocarbon sector, including exploration, producing, refining and marketing of petroleum products has now been opened to foreign participation. The Government had recently allowed foreign investment up to 51% in mining for commercial purposes and up to 49% in telecommunication sector. The government is also examining a proposal to do away with the stipulation that foreign equity should cover the foreign exchange needs for import of capital goods. In view of the country's improved balance of payments position, this requirement may be eliminated.

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2.4 PLANNING THE JOINT VENTURE

Identifying Objectives Drafting the Joint Venture Agreement

Selecting a Partner

Planning the Joint Venture
Identifying Conflicts between Partners Identifying Legal Problems Choosing the Business Form

1. Identifying Objectives At the outset of every proposed joint venture, it is necessary to have an understanding of the basic objectives of the proposed enterprise. This includes identification of the nature and scope of the proposed undertaking, as well as the company's expectations and goals. For example, if a company is seeking a shortterm arrangement to measure the potential market for a product in a foreign country, a licensing or straightforward contractual arrangement might be preferable to a joint venture, which generally contemplates a longer term and more substantial commitment.

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2. Selecting a Partner If a joint venture is deemed desirable, one of the first considerations is the selection of a compatible partner. A concern may initially seek a co-venturer of equal business stature and with comparable corporate policies, philosophies, and financial resources. Through the process of active negotiation, involving business people as well as lawyers, the JVPs should determine whether their objectives are compatible. This process may be difficult, but it is important, particularly in the context of multinational joint ventures, given the cultural, linguistic, political, and social differences between the parties. Similarly, there may be legal, accounting, and tax differences between the countries of the JVPs. Since all of these differences may give rise to misunderstandings, they must be reconciled.

3. Choosing the Business Form The next step is to choose the basic structure of the business venture. A variety of complex legal and practical considerations are involved at this stage. It is necessary to identify the respective contributions of the parties and the proposed financing arrangements in order to measure the compatibility of the potential JVPs and to determine the appropriate organizational form. Frequently, one JVP looks to a capital infusion and, in return, shares its technology expertise, and know-how. 4. Identifying Legal Problems At the beginning of the process, counsel must identify and resolve major legal issues and potential problem areas, including governmental regulatory matters. 5. Identifying Conflicts between Partners It is also important to identify potential areas of conflict between the JVPs so that they can be reconciled prior to making an irrevocable commitment. For example, the parties may have to deal with differing tax objectives resulting from fundamentally different business goals or, more commonly, from different constraints of the tax laws and accounting practices of the home country. Early
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recognition of these issues may allow the parties sufficient flexibility to structure the joint venture to avoid these problems.

6. Drafting the Joint Venture Agreement Finally, after the goals, structure, and legal issues have been identified, it is necessary to draft the joint venture agreement. As will be seen in later chapters of this book, international joint ventures often involve unique features, and careful draftsman ship is required.

2.5 HOW TO ENTER INTO A JOINT VENTURE AGREEMENT?
Selection of a good local partner is the key to the success of any joint venture. Once a partner is selected generally a Memorandum of Understanding or a Letter of Intent is signed by the parties highlighting the basis of the future joint venture agreement. A Memorandum of Understanding and a Joint Venture Agreement must be signed after consulting lawyers well versed in international laws and multi-jurisdictional laws and procedures. Before signing the joint venture agreement, the terms should be thoroughly discussed and negotiated to avoid any misunderstanding at a later stage. Negotiations require an understanding of the cultural and legal background of the parties. Before signing a Joint Venture Agreement the following must be properly addressed: 1. Dispute resolution agreements 2. Applicable law. 3. Force Majeure 4. Holding shares
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5. Transfer of shares 6. Board of Directors 7. General meeting. 8. CEO/MD 9. Management Committee 10. Important decisions with consent of partners 11. Dividend policy 12. Funding 13. Access. 14. Change of control 15. Non-Compete 16. Confidentiality 17. Indemnity 18. Assignment. 19. Break of deadlock 20. Termination. The Joint Venture agreement should be subject to obtaining all necessary governmental approvals and licenses within specified period.

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2.6 HOW TO DRAFT JOINT VENTURE AGREEMENTS AND CONTRACTS?
Generally a Memorandum of Understanding or a Letter of Intent is signed by the parties highlighting the basis of the future joint venture agreement. A good Joint Venture agreement is one which provides a comprehensive road map of the duties and obligations of both the parties. It minimizes complications when a dispute arise. However, many a times people neglect to pay attention while drafting an Joint Venture agreement. Before finalizing an Joint Venture Agreement, the terms should be thoroughly discussed and negotiated to avoid any misunderstanding at a later stage. Negotiations require an understanding of the cultural and legal background of the parties. A Memorandum of Understanding and a Joint Venture Agreement must be signed after consulting lawyers well versed in international laws and multi-jurisdictional laws and procedures. Before signing an Joint Venture Agreement the following must be properly addressed:  Applicable law.  Force Majeure  Holding shares  Transfer of shares  Board of Directors  General meeting.  CEO/MD

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 Management Committee  Important decisions with consent of partners  Dividend policy  Funding  Access.  Change of control  Non-Compete  Confidentiality  Indemnity  Assignment.  Break of deadlock  Termination  Security and confidentiality  Legal compliance  Fees and payment terms  Proprietary rights  Auditing rights  Events of Defaults and Addressing  Dispute Resolution Mechanism  Time limits
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 Location of Arbitration  Number of Arbitrators  Interim measures/Provisional Remedies  Privacy Agreement  Non-compete Agreement  Confidentiality Agreement  Rules Applicable  Appeal & Enforcement  Be aware of local peculiarities  Survival terms after the termination of the Joint Venture agreement. The Joint Venture agreement should be subject to obtaining all necessary governmental approvals and licenses within specified period. Every Joint Venture agreement should be modified as applicable under different circumstances. One brush should not paint all the painting. International Joint Venture could be is a legal minefield and many companies are not aware of the problems it causes.

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2.7 REASONS FOR FORMING A JOINT VENTURE
a) Internal Reasons b) Build on company's strengths c) Spreading costs and risks d) Improving access to financial resources e) Access to new technologies and customers f) Access to innovative managerial practices g) Competitive Goals h) Creation of stronger competitive units i) Speed to market j) Strategic Goals k) Transfer of technology/skills l) Diversification

2.8 ADVANTAGES OF JOINT VENTURES
1) Joint ventures enable companies to share technology and complementary IP assets for the production and delivery of innovative goods and services. 2) For the smaller organization with insufficient finance and/or specialist management skills, the joint venture can prove an effective method of obtaining the necessary resources to enter a new market. This can be especially true in attractive markets, where local contacts, access to distribution, and political requirements may make a joint venture the preferred or even legally required solution. 3) Joint ventures can be used to reduce political friction and improve local/national acceptability of the company.

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4) Joint ventures may provide specialist knowledge of local markets, entry to required channels of distribution, and access to supplies of raw materials, government contracts and local production facilities. 5) In a growing number of countries, joint ventures with host governments have become increasingly important. These may be formed directly with State-owned enterprises or directed toward national champions. 6) There has been growth in the creation of temporary consortium companies and alliances, to undertake particular projects that are considered to be too large for individual companies to handle alone (e.g. major defence initiatives, civil engineering projects, new global technological ventures). 7) Exchange controls may prevent a company from exporting capital and thus make the funding of new overseas subsidiaries difficult. The supply of know-how may therefore be used to enable a company to obtain an equity stake in a joint venture, where the local partner may have access to the required funds.

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2.9 DISADVANTAGES OF JOINT VENTURES
1)

A major problem is that joint ventures are very difficult to integrate into a global

strategy that involves substantial cross-border trading. In such circumstances, there are almost inevitably problems concerning inward and outward transfer pricing and the sourcing of exports, in particular, in favour of wholly owned subsidiaries in other countries.
2)

The trend toward an integrated system of global cash management, via a central

treasury, may lead to conflict between partners when the corporate headquarters endeavors to impose limits or even guidelines on cash and working capital usage, foreign exchange management, and the amount and means of paying remittable profits.
3)

Another serious problem occurs when the objectives of the partners are, or

become, incompatible. For example, the multinational enterprise may have a very different attitude to risk than its local partner, and may be prepared to accept shortterm losses in order to build market share, to take on higher levels of debt, or to spend more on advertising. Similarly, the objectives of the participants may well change over time, especially when wholly owned subsidiary alternatives may occur for the multinational enterprise with access to the joint venture market.
4)

Problems occur with regard to management structures and staffing of joint

ventures.
5)

Many joint ventures fail because of a conflict in tax interests between the partners.

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2.10 WHY JOINT VENTURES FAIL?

(Source: 1000ventures.com)

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CHAPTER 3 JOINT VENTURES IN INDIAN INSURANCE SECTOR

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3.1 LIBERALIZATION OF INSURANCE SECTOR
Since late 1999, the Indian insurance market has undergone major structural changes. The government monopoly was dissolved, private companies were permitted to operate, and brokers suddenly had a role to play. In this country of one billion people, the untapped potential for insurance and reinsurance business is enormous. Nevertheless, impediments to an open and competitive market still exist in the form of restrictions on foreign investments, compulsory tariffs, and mandatory reinsurance sessions. The following are the reasons for liberalization of insurance sector in India: 1. To avoid monopolized (by the State run LIC and GICs) market. 2. Create awareness in urban areas about the needs and benefits of insurance. 3. To reduce the yawning gap between the needs of customers and products being offered by the state owned companies. 4. To mobilize funds from the economy for the infrastructure development. 5. To provide multiple innovative products. 6. To provide better customers‘ service from existing state owned players.

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3.2 JOINT VENTURES IN INSURANCE INDUSTRY IN INDIA
Several leading private sector companies have entered in the field of insurance sector, both in life and non-life insurance. There are several MNCs, in Joint Venture with Indian private sector firms, having started operations in a big way.

Registration No. 101

Date of Registration 23.10.2000

Name of Company HDFC Standard Life

Percentage of Holding

Standard Life-18, HDFC- 82

104

15.11.2000

Max New York Life

New York Life-26, Max India-74

105

24.11.2000

ICICI Prudential Life

Prudential,UK-26; ICICI Bank-74

107

10.01.2001

Om Kotak Mahindra

Old Maruthi, South Africa-26; Kotak Mahindra-74 Sun Life, Canada-26; Birla Capital74

109

31.01.2001

Birla Sun life

110 111

12.02.2001 30.03.2001

Tata AIG SBI Life

AIG,US- 26; Tatas-74 Cardiff SA, France-26; State Bank of India-74

114

02.08.2001

ING Vysya

ING Holland-26, GMR Group-54, Ing Vysya Bank-20

116

03.08.2001

Bajaj Allianz

Allianz AG, Germany-26; Bajaj Auto-74

117

06.08.2001

MetLife

MetLife,US-26; Shapoorji Pallonji30; J & K bank-25; Others-21

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122 N.A

03.01.02 25.09.2007

Aviva Star Union Daichii

Aviva PLC,UK-26; Dabur Group-74 Daichii Life, Japan-26; Bank of India-51; Union Bank of India-23 Fortis, Europe-26; Federal Bank, India-26; IDBI Bank-48

N.A

19.12.2007

IDBI Fortis

N.A

N.A

Future Generali Life

Generali Group, Italy-26; Future

3.3 DIFFERENT JOINT VENTURES IN INDIA
Indian Insurance Industry has seen number of joint ventures in the past 10 years after the recommendations of IRDA and after the gates of privatization were opened. The following are the major and famous joint ventures that took place in the last 10 years:

3.3.1 HDFC STANDARD LIFE INSURANCE
Established on 14th August 2000, HDFC Standard Life Insurance Co. Ltd. is a joint venture between Housing Development Finance Corporation Limited (HDFC Limited) - India's leading housing finance institution, and a Group Company of the Standard Life Plc, UK. The Company is one of leading private insurance companies, offering a range of individual and group insurance solutions, in India. Being a joint venture of top financial services groups, HDFC Standard Life has adequate financial expertise to manage long-term investments safely and resourcefully.

HDFC Standard Life Insurance offers a range of individual and group solutions, which can be easily personalized to specific needs. Its group solutions have been planned to offer complete flexibility, together with a low charging structure. As of 31 December,
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2008, the Company's new business premium income stood at Rs. 1,839.70 Crores; it has covered over 812,811 lives so far. HDFC operates through almost 450 locations throughout the country with its corporate head quarters in Mumbai, India. HDFC also has an International Office in Dubai, UAE with service associates in Kuwait, Oman and Qatar. HDFC is the largest housing company in India for the last 27 years.

About HDFC Limited HDFC Limited, India‘s premier housing finance institution has assisted more than 3.3 million families own a home, since its inception in 1977 across 2400 cities and towns through its network of over 250 offices. It has international offices in Dubai, London and Singapore with service associates in Saudi Arabia, Qatar, Kuwait and Oman to assist NRI‘s and PIO‘s to own a home back in India. As of December 2008, the total asset size has crossed more than Rs. 95,000 crores including the mortgage loan assets of more than Rs. 82,800 crores. The corporation has a deposit base of Rs. 17,551 crores, earning the trust of more than 9,00,000 depositors. Customer Service and satisfaction has been the mainstay of the organization. HDFC has set benchmarks for the Indian housing finance industry. Recognition for the service to the sector has come from several national and international entities including the World Bank that has lauded HDFC as a model housing finance company for the developing countries. HDFC has undertaken a lot of consultancies abroad assisting different countries including Egypt, Maldives, and Bangladesh in the setting up of housing finance companies.

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About Standard Life Group
The Standard Life Group has been looking after the financial needs of customers for over 180 years. It currently has a customer base of around 7 million people who rely on the company for their insurance, pension, investment, banking and health-care needs. Its investment manager currently administers £125 billion in assets. It is a leading pensions provider in the UK, and is rated by Standard & Poor's as 'strong' with a rating of A+ and as 'good' with a rating of A1 by Moody's. Standard Life was awarded the 'Best Pension Provider' in 2004, 2005 and 2006 at the Money Marketing Awards, and it was voted a 5 star life and pension‘s provider at the Financial Adviser Service Awards for the last 10 years running. The '5 Star' accolade has also been awarded to Standard Life Investments for the last 10 years, and to Standard Life Bank since its inception in 1998. Standard Life Bank was awarded the 'Best Flexible Mortgage Lender' at the Mortgage Magazine Awards in 2006.

Performance of Joint Venture between HDFC and Standard Life HDFC Standard Life Insurance Company Limited was one of the first companies to be granted license by the IRDA to operate in life insurance sector. Reach of the JV player is highly rated and been conferred with many awards. HDFC is rated ‗AAA ‘ by both CRISIL and ICRA. Similarly, Standard Life is rated ‗AAA‘ both by Moody‘s and Standard and Poor‘s. These reflect the efficiency with which HDFC and Standard Life manage their asset base of Rs. 15,000 Cr and Rs. 600,000 Cr. respectively. HDFC Standard Life Insurance Company Ltd was incorporated on 14th August 2000. HDFC is the majority stakeholder in the insurance JV with 81.4% staple and Standard of as a staple 18.6% Mr. Deepak Satwalekar is the MD and CEO of the venture. HDFC Standard Life Insurance Company Ltd. Is one of India‘s leading Private Life Insurance Companies, which offers a range of individual and group insurance solutions. It is a joint venture between Housing Development Finance Corporation Limited (HDFC Ltd.) India‘s leading housing finance institution and the Standard Life Assurance
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Company, a leading provider of financial services from the United Kingdom. Both the promoters are well known for their ethical dealings and financial strength and are thus committed to being a long-term player in the life insurance industry- all important factors to consider when choosing your insurer. Key Strengths  Financial Expertise As a joint venture of leading financial services groups, HDFC standard Life has the financial expertise required to manage long-term investments safely and efficiently.  Range of Solutions HDFC SLIC has a range of individual and group solutions, which can be easily customized to specific needs. These group solutions have been designed to offer complete flexibility combined with a low charging structure.  Strong Ethical Values HDFC SLIC is an ethical and Cultural Organization. False selling or false commitment with the customers is not allowed.  Most respected Private Insurance Company HDFC SLIC was awarded No-1 Private Insurance Company in 2004 by the World Class Magazine Business World for Integrity, Innovation and Customer Care.

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3.3.2 BIRLA SUNLIFE INSURANCE COMPANY
Established in 2000, Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between the Aditya Birla Group, a well known and trusted name globally amongst Indian conglomerates and Sun Life Financial Inc, leading international financial services organization from Canada. The local knowledge of the Aditya Birla Group combined with the domain expertise of Sun Life Financial Inc., offers a formidable protection for its customers‘ future.

With an experience of over 9 years, BSLI has contributed significantly to the growth and development of the life insurance industry in India and currently ranks amongst the top 5 private life insurance companies in the country.

Known for its innovation and creating industry benchmarks, BSLI has several firsts to its credit. It was the first Indian Insurance Company to introduce ―Free Look Period‖ and the same was made mandatory by IRDA for all other life insurance companies. Additionally, BSLI pioneered the launch of Unit Linked Life Insurance plans amongst the private players in India. To establish credibility and further transparency, BSLI also enjoys the prestige to be the originator of practice to disclose portfolio on monthly basis. These category development initiatives have helped BSLI be closer to its policy holders‘ expectations, which gets further accentuated by the complete bouquet of insurance products (viz. pure term plan, life stage products, health plan and retirement plan) that the company offers

Add to this, the extensive reach through its network of 600 branches and 1,75,000 empanelled advisors. This impressive combination of domain expertise, product range, reach and ears on ground, helped BSLI cover more than 2 million lives since it
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commenced operations and establish a customer base spread across more than 1500 towns and cities in India. To ensure that our customers have an impeccable experience, BSLI has ensured that it has lowest outstanding claims ratio of 0.00% for FY 2008-09. Additionally, BSLI has the best Turnaround Time on all claims Parameters. Such services are well supported by sound financials that the Company has. The AUM of BSLI stood at Rs. 8165 crores as on February 28, 2009, while as on March 31, 2009, the company has a robust capital base of Rs. 2000 crores. THE ADITYA BIRLA GROUP ―Aditya Birla‖, a name that evokes all that is positive in business and life. It typifies integrity, quality, performance, innovation, perfection and above all, character. In operation for over 50 years now, the Aditya Birla Group is one of India‘s largest business houses. A highly respected and admired group, rooted in performance ethics based on value creation for its multiple stakeholders. The Aditya Birla Group‘s operations span over 40 units across 18 countries, anchored by a 72,000 strong committed workforce, a group turnover exceeding Rs.27, 000 crore, an asset base which exceeds Rs.20, 000 crore and a market capitalization of over Rs.13, 000 crore spread over 7 lac shareholders. Known for its rack solid fundamentals it nurtures a culture where success does not come in the way of the need to keep learning afresh to continue innovating and to carry on experimenting. Being one of the largest corporate houses in India, and Aditya Birla Group enjoys a dominant position in all the sectors in which it operates. It is the world‘s largest producer of viscose staple fibre, largest single location aluminum plant and the largest single location refiner of palm oil. What‘s more, it is the second largest producer of insulators and the fifth largest producer of carbon black in the world. In India, the group is the single largest producer of viscose filament yarn, aluminum, white cement and the third largest in grey cement. Not to mention, the recognition of

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being the market leader in the ready to wear branded apparel segment with brands like Allen solly, Louis Phillip, van heusen and peter England. The flagship companies of the Aditya Birla Group include some of the largest and most respected companies in India such as grasim industries limited, Hindalco industries limited, Indian Aluminum Company limited, Indian Rayan Industries Limited, Indo Gulf Corporation Limited. The Group has larged power relationship with large corporations like Hindustan Petroleum, Tata, Powergen Plc and AT&T. The group fosters a culture that promotes excellence and rewards entrepreneurship. It endeavors to make the workplace a source of creativity, innovation and self-fulfillment for its employees. Nurturing a corporate culture imbedded with a high level of commitment and a sense of shared destiny. The mission of the Aditya Birla Group is creation of value for its customers, shareholders, employees and the society at large. SUN LIFE FINANCIAL: Sun life financial is a leading international financial services organization. With a history that dates back to 1871, Sun life financial has evolved from a single mutual life insurance to one of the most highly rated insurance and wealth management institution in the world. Sun life financial knows its value lies in more than assets and history. It also lies in the culture of the integrity and the pursuit of excellence that have marked all of the organization endeavors. Today the sun life financial group of comp anise and the partners are represented globally in Canada, the United States, the Philippines, Japan, Indonesia, India and Bermuda. In March of 2000, Sun life financial services of Canada, inc, Sun life financier‘s parent company, listed its shares on stock markets in Toronto, New York, London, and Philippines. This new access to shareholders equity provides Sun life financial with even greater opportunities to grow around the world. The Sun life financial group of companies around the world, offer innovative and practical financial solutions to individuals and corporations:
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 Life, Health and Disability  Pension Funds and Plans  Investment Management  Annuities and Savings  Trust, Brokerage and Banking Sun life assurance Company of Canada, sun life financier‘s primary insurance business, has excellent ratings with the world‘s top ratings agencies. With assets under management as on September 30, 2000 totaling more than CDN$345 billion, it ranks amongst the largest international financial services organizations in the world. Sun life financial enjoys independent rating that place us at the top of the financial sector in North America.

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CHAPTER 4 PERFORMANCE OF JOINT VENTURE OF ICICI PRUDENTIAL AND BAJAJ ALLIANZ

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4.1 ICICI PRUDENTIAL LIFE INSURANCE
ICICI Prudential Life Insurance Company Limited (‗the Company‘) a joint venture between ICICI Bank Limited and Prudential plc of UK was incorporated on July20, 2000 as a company under the Companies Act, 1956 (‗the Act‘). The Company is licensed by the Insurance Regulatory and Development Authority (‗IRDA‘) for carrying life insurance business in India.

4.1.1 Formation of Joint Venture
ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank, a premier financial powerhouse and prudential plc, a leading international financial services group headquartered in the United Kingdom (UK). The company brings together the local market expertise and financial strength of ICICI Bank and Prudential‘s International life insurance experience. The company was granted a certificate of Registration by the IRDA on November 24, 2000 and eighteen days later, issued its first policy on December 12. ICICI Prudential was amongst the first private sector insurance companies to begin operations in December 2000 after receiving approval from Insurance Regulatory Development Authority (IRDA). From its early days, ICICI Prudential seemed to have the wherewithal for a large-scale business. By March 31, 2002, a little over a year since its launch, the company had issued 100,000 policies translating into premium income of approximately Rs. 1,200 million on a sum assured of over Rs.23 billion. When the company began its operations, the need was to build a brand that was relatable to, symbolized trust and was easily recognized and understood. It launched a corporate campaign ICICI Prudential also made using the theme of ‗Sindoor‘ to epitomize protection, trust, togetherness and all that is Indian; endearing itself to the masses. The success of the campaign, ‗the calling card of the company‘ saw the brand awareness scores almost at par with its 40 year old competitor.
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The theme of protection was also extended to subsequent product and category specific campaigns –from child plans to retirement solutions –which highlight how the company will be with its customers at every step of life. From day one, the company has unflinchingly focused on being mass-market player, developing products, creating a distribution network and deploying resources that would further its goal. Apart from ramping up thoroughly training its advisors, the company has twelve ‗Bancasurance‘ partners –the largest in the country. It swiftly revised and added to its initial range of products, pioneering market-linked products and pension plans, to offer customers the most flexible life insurance policies in the country. In February 2004, ICICI Prudential increased its capital base by Rs. 500 million, its ninth capital hike, bringing the total paid –up equity capital to Rs. 6,750 million. With the authorized capital of the company standing at Rs. 12 billion, ICICI Prudential continues to have the highest capital base amongst all life insurers in the country. The challenge ICICI Prudential now faces is to retain its top-notch position and continue to deliver the finest life insurance and pension solutions to its ever-growing customer base. ICICI Prudential‘s equity base stands at Rs. 1185 crore with ICICI Bank and Prudential plc holding 74% and 26% stake respectively. For the year ended March 31, 2006, the company garnered Rs.2, 412 crore of weighted new business premium and wrote 837,963 policies. The sum assured in force stands at Rs.45, 888 crore. The company has a network of over 72,000 advisors; as well as 9 Bancasurance partners and over 200 corporate agent and broker tie-ups. 4.1.2 About the Promoters  ICICI Bank (NYSE:IBN) is India‘s second largest bank with an asset base of Rs.2513.89 billion as on March 31, 2006. ICICI Bank provides a broad spectrum of financial services to individuals and companies. This includes mortgages, car and personal loans, credit and
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debit cards, corporate and agricultural finance. The Bank services a growing a customer base of more than 17 million customers through a multi channel access network which includes over 620 branches and extension counters, 2200 ATMs, call centers and internet banking  Prudential PLC Established in London in 1848, through its business in the UK and Europe, the US and Asia, provides retail financial services products and services to more than 16 million customers, policy holder and unit holders worldwide. As of December 31, 2005, the company had over US$ 400 billion in funds under management. Prudential has brought to market an integrated range of financial services products that now includes life assurance, pensions, mutual funds, banking, investment management and general insurance. In Asia, Prudential is the leading European life insurance company with a vast network of 23 life and mutual fund operations in twelve countries –China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand and Vietnam.

4.1.3 Distribution Channel of ICICI Prudential ICICI Prudential Life has one of the largest distribution networks amongst private life insurers in India. It has a strong presence across India with 1,960 branches (including 1,096 micro-offices) and an advisor base of over 230,000 (as on December 31, 2009) The company has 6 bancassurance partners having tie-ups with ICICI Bank, Jalgaon Peoples Co-op Bank, Ratanagiri District Central Co-op Bank, Ballia Kshetriya Cooperative Bank, Renuka Nagrik Sahakari Bank, Bhandara Urban Co-operative Bank.

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4.1.4 The Joint Strengths of ICICI Prudential
The joint strengths
A powerful joint venture partnership with each carrying a set of strengths complementing each others

Brand strength

Reputation

Infrastructure Customer base Market Innovators

Insurance expertise

PRUDENTIAL ICICI

Product Distribution

Local knowledge

Operations

4.1.5 Achievements
ICICI Prudential is also the only private life insurer in India to receive a National Insurer Financial Strength rating of AAA from Fitch ratings. The AAA rating is the highest credit rating, and is a clear assurance of ICICI Prudential‘s ability to meet its obligations to customers at the time of maturity or claims. For the past five years, ICICI Prudential has retained its position as the No.1 private insurer in the country, with a wide range of flexible products that meet the needs of the Indian customer at every step in life. Beginning operations in December 2000, ICICI Prudential‘s success has been meteoric, becoming the number one private life insurer within months of launch. Today, it has one of the largest distribution networks amongst private life insurers in India, with branches in 54 cities. The total number of policies issued stands at more than 780,000 with a total sum assured in excess of Rs.160 billion.

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ICICI Prudential closed the financial year ended march 31, 2004 with a total received premium income of Rs. 9.9 billion; up 135% last year‘s total premium income of Rs.4.20 billion. New business premium income shows a 106% growth at Rs. 7.5 billion, driven mainly by the company‘s range of unique unit-linked policies and pension plans. The company‘s retail market share amongst private companies stood at 36%, making it clear leader in the segment. To add to its achievements, in the year 2003/04 it was adjudged Most Trusted Private Life Insurer (Economic Times ‗Most Trusted Brand Survey‘ by AC Nielsen ORG-MARG). It was also conferred the ‗Outlook Money-Best Life Insurer‘ award for the second year running. ICICI Prudential‘s success is rooted in its philosophy to always offer the customer a choice. This has been the driving force behind its multi-channel distribution strategy, which includes advisors, banks, direct marketing and corporate agents. In fact, ICICI Prudential was the first life insurer to invest in multiple channels and offer the customer choice and access; thus reducing dependency on any one channel, great strides in the retirement solutions and pensions market. The Company‘s penetration of the retirement market was driven by the focused approach towards creating awareness through sustained campaign; ‗Retire from work, not life‘. Within six months, the campaign rewarded ICICI Prudential with an increased share of 23% of the total pensions market and 78% amongst private players. ICICI Prudential has one of the largest distribution networks amongst private life insurers in India, having commenced operations in 132 cities and towns in India, stretching from Bhuj in the west to Guwahati in the east, and Jammu in the north to Trivandrum in the south. The company has 9 bank partnerships for distribution, having agreements with ICICI Bank, Bank of India, Federal Bank, South Indian Bank, Lord Krishna Bank, and some co-operative banks, as well as over 200 corporate agents and brokers, it has also tied up with NGOs, MFIs and corporate for the distribution of rural policies.

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ICICI Prudential has recruited and trained more than 72,000 insurance advisors to interface with and advise customers. Further, it leverages its state-of-the-art IT infrastructure to provide superior quality of service to customers.

4.2 BAJAJ ALLIANZ
BAJAJ Allianz Life Insurance Company is a joint venture between two leading conglomerates, Bajaj Auto Limited, one of largest manufactures of motorcycles and scooters in the world, and Allianz AG of Germany one of the largest insurance companies. Bajaj Allianz Life Insurance Co. Ltd. was incorporated on 12th March 2001. The company received the Insurance Regulatory and Development Authority (IRDA) certificate of Registration (R3) No 116 on 3rd August 2001 to conduct Life Insurance business in India. Bajaj Allianz Shareholder Capital Base stands at Rs. 500 crore with Bajaj Auto Limited and Allianz AG of Germany holding 74% and 26% stake respectively. It is the largest private player in the Insurance Industry in India with a market share of around 34% amongst the private companies and second to LIC. The total market share of Bajaj Allianz as of 31st March 2006 is at 12%. Bajaj Allianz Insurance started its journey on May 2, 2001 when it received the certificate of Registration from Insurance Regulatory and Development Authority (IRDA) for conducting General Insurance business in India including Health Insurance. As on the end of March 2009, the income of Bajaj Allianz Insurance went up to Rs. 2,866 crore with a growth of 11% over the previous year. It also registered a net profit of Rs. 95 crore, highest by any private insurer, in the last financial year. During the financial year 2005-2006, Bajaj Allianz has sold over 13 lakh policies and collected about Rs. 4433 crore as premium income. Whopping growth of 216% for the
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FY 2005-06, Assets under management of Rs. 3324Crore. It has paid up Rs 925 crores with IRDA as a caution deposit. Bajaj Allianz has insured lives for sum assure of over Rs 8500 crore.

4.2.1 Promoters of the Company Bajaj Auto Limited
Bajaj Auto Ltd, the flagship company of the Rs. 8000 crore Bajaj group is the largest manufacturer of two-wheelers and three-wheelers in India and one of the largest in the world. A household name in India, Bajaj Auto has a strong brand image & brand loyalty synonymous with quality & customer focus. With over 15,000 employees, the company is a Rs. 4000 crore auto giant, is the largest 2/3-wheeler manufacturer in India and the 4th largest in the world. AAA rated by Crisil, Bajaj Auto has been in operation for over 55 years. It has joined hands with Allianz to provide the Indian consumers with a distinct option in terms of life insurance products. As a promoter of Bajaj Allianz Life Insurance Co. Ltd., Bajaj Auto has the following to offer 1. Financial strength and stability to support the Insurance Business. 2. A strong brand-equity. 3. A good market reputation as a world class organization. 4. An extensive distribution network. 5. Adequate experience of running a large organization. 6. A 10 million strong base of retail customers using Bajaj products. 7. Advanced Information Technology in extensive use.
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8. Experience in the financial services industry through Bajaj Auto Finance Ltd

Allianz AG
Founded in 1890 in Berlin, Allianz is now present in over 70 countries with almost 174,000 employees. At the top of the international group is the holding company, Allianz AG, with its head office in Munich. Allianz AG is in the business of General (Property & Casualty) Insurance; Life & Health Insurance and Asset Management and has been in operation for over 110 years. Allianz is one of the largest global composite insurers with operations in over 70 countries. Further, the Group provides Risk Management and Loss Prevention Services. Allianz has insured most of the world's largest infrastructure projects (including Hongkong Airport and Channel Tunnel between UK and France), further Allianz insures the majority of the fortune 500 companies, besides being a large industrial insurer, Allianz has a substantial portfolio in the commercial and personal lines sector, using a wide variety of innovative distribution channels. Allianz Group provides its more than 60 million customers worldwide with a comprehensive range of services in the areas of  Property and Casualty Insurance,  Life and Health Insurance,  Asset Management and Banking.  Worldwide 2nd by Gross Written Premiums - Rs.4, 46,654 crore.  3rd largest Assets under Management (AUM) & largest amongst Insurance cos. AUM of Rs.51, 96,959 crore.  12th largest corporation in the world.  49.8 % of global business from Life Insurance.  Established in 1890, 110 yrs of Insurance expertise.  70 countries, 173,750 employees worldwide.

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4.2.2 Facts and Figures about Bajaj Allianz Life Insurance Company
a. The fastest growing private life insurance company in India, with a growth rate of 380%. b. Have sold over 650000 policies to satisfied customers c. Is back by a network of 400 offices spanning the country d. Ranked second among private life insurance companies in India e. Assets under management Rs936 crores f. Shareholder capital base of Rs267 crores g. Product tailored to suit your needs h. Decentralized organization structure for faster response i. Wide reach to serve you better-a national wide network of 400 branches j. Specialized departments for banc assurance, corporate agency and group business k. Well networked customer care centers (CCCs) with state of art IT systems l. Highest standard of customer service and simplified claims process in the industry

4.2.3 Financial Growth of Bajaj Allianz
Accelerated Growth No. of policies sold 2137 1,15,965 1,86,443 2,88,189 7,81,685 20,79,217 37,44,742

Fiscal Year 2001-2002(6 months) 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

New Business in FY Rs. 7 cr. Rs. 63.3 cr. Rs. 180 cr. Rs. 857 cr. Rs. 2,717 cr. Rs. 4,302 cr. Rs. 6,674 cr. (Source: www.bajajallianzlife.co.in)

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CHAPTER 5 UPCOMING JOINT VENTURES IN INDIAN INSURANCE INDUSTRY

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5.1 SBI’s INSURANCE VENTURE GETS NOD FROM IRDA
(Friday, March 12, 2010)

Competition is set to intensify in India‘s insurance sector, with new entrants waiting to launch life, non-life and stand-alone health insurance firms. The insurance regulator IRDA gave its ultimate approval to the State Bank of India (SBI) for its proposed non-life joint venture with IAG of Australia. The final go-ahead to start operations will be given once they bring in the required capital. SBI had selected IAG, formerly known as Insurance Australia Group, as its partner a year ago. But its application to IRDA was delayed due to the global meltdown, following the collapse of Lehman Brothers. SBI‘s entry is expected to create ripples in the non-life industry as the bank has a distribution network of close to 14,000 branches and is reckoned to be a formidable player in auto and home loans. At present, there are 43 insurance ventures in India, with 22 companies in the life insurance space and the remaining in the non-life segment which also includes two standalone health insurance companies. Life insurance penetration is around 4% of the GDP in terms of premiums underwritten in a year. These companies collected around Rs 2,21,434 crore in FY 09 through sale of new policies and renewals.

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5.2 “Magma, HDI-Gerling form insurance JV”
(Friday, January 29, 2010)

Magma Fincorp is foraying into insurance business. The company has just inked an agreement with German insurance major HDI-Gerling International Holding to enter the general insurance sector in India. The new JV plans to seek the necessary Insurance Regulatory & Development Authority (IRDA) and the Reserve Bank of India (RBI) approvals soon. Incidentally, HDI-Gerling International is part of the Talanx Group —the third-biggest primary insurance group in Germany — with a product range extending across automotive insurance for private individuals, property and casualty segments and complex risks in industrial business.

The new joint venture, Magma HDI General Insurance Company will have an initial paid-up equity capital of Rs 110 crore. Headquartered in Kolkata, the JV Company will leverage on the strengths of the two companies to offer general insurance products through Magma‘s existing strong distribution and service network spread across rural India.

Speaking to media persons after signing the agreement with HDI-Gerling, Magma Fincorp vice-chairman & managing director Sanjay Chamria said: ―While Magma Fincorp and its promoters will collectively hold about 74% of the company‘s total paidup capital, our German partners will hold the balance 26%.‖

As and when the government allows 49% foreign direct investment in the insurance sector, HDI-Gerling International may increase their holding to 49%.
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(Wednesday, April 26, 2010)

5.3 “ADAG eyes foreign partners for life, general insurance business”
The Anil Ambani Group-promoted Reliance General Insurance is looking to buy a majority stake in its rival Royal Sundaram, while talks are in advanced stages to bring in Swiss Re as foreign partner in its life insurance venture. While talks have reached advanced stages for sale of 10-15% stake in Reliance Life to Swiss Re for an estimated Rs1,500 crore, a possible buyout of the Sundaram Group‘s 74% stake in Royal Sundaram Alliance Insurance could take some time due to regulatory issues, sources in the know of the developments said. Royal Sundaram Alliance Insurance Company is a joint venture between the Sundaram Group and the England-based RSA, which owns 26% stake in the alliance. Though the deal size could not be ascertained, it can be noted that Royal Sundaram has mopped up Rs820 crore premium in the first 11 months of this fiscal, compared to Rs1,847 crore premium collected by Reliance General. If successful, it would be the first time that a general insurance firm acquires a rival and therefore the relevant guidelines need to be sought from the sectoral regulator Irda. In the life insurance space such a deal has happened in the past when Reliance Life acquired AMP Sanmar in 2005.

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Both Reliance Life and Reliance General are part of Reliance Capital, the Anil Dhirubhai Ambani Group‘s financial services arm. With these two separate deals, Reliance Capital is seeking foreign alliances to run both its life as well as general insurance businesses, sources said. As per the existing rules, a foreign entity can hold only up to 26% stake in an insurance firm in the country. Besides plans to offload 10-15% stake to a foreign partner, Reliance Life could sell additional 10-15% shares through an initial public offer, for which it is awaiting final IPO guidelines from Irda, expected by the end of the next month.

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CHAPTER 6 CONCLUSIONS

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CONCLUSION
India is the 5th largest market in Asia by premium following Japan, Korea, China and Taiwan. The US$ 30 billion insurance business in India is expected to grow 17 per cent in fiscal 2008-09 if the country‘s economy clocks 7.6 percent GDP. In fiscal 2007-08 life insurers grew their business by 23.3 percent to Rs.930 billion while general insurers posted growth of about 14 percent in premium income to Rs 298 billion. Presently the total number of insurers registered with the Insurance Regulatory and Development Authority (IRDA) stands at 42:21 in life insurance and 21 in general insurance segments. Some joint ventures include Tata AIG, Bajaj Allianz, ICICI Prudential, SBI Life, HDFC Standard Life, Birla Sunlife, Max New York Life and Bharti AXA Life. The Indian insurance sector has a turnover of around Rs 26,287 crore. The current FDI in this sector stands at around Rs 2500 crore and market experts expects FDI to zoom by about 2.5 times once the FDI cap is raised by another 23 percent to 49 percent. The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has projected that foreign direct investment (FDIs) will increase in insurance sector by $ 0.46 billion in next 2 years and likely to touch $ 0.96 billion as it is still regulated. A Paper on FDI‘s Prospects in Insurance Sector brought out by the ASSOCHAM says that currently the total insurance market in India is about $ 30 billion, in which the element of FDI‘s is $ 0.5 billion. This is 1.6 percent of total insurance business in India. Despite, insurance being a highly regulated sector, however, in the first five months of current calendar, i.e. between January to May, it could attract FDI‘s of $ 217.97 million which by any standard is not too insignificant. If the insurance sector is opened up to an extent of 49 percent for FDI‘s, in next 2 years, i.e. by 2010, the FDI‘s contribution to insurance business would touch nearly $ 2 billion. Currently, only 26 percent of FDI‘s are permitted in insurance sector, the chamber expects. It is pointed out that the
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domestic insurance sector has been growing at an average speed of nearly 200 percent and that is why the chamber is of the view that by 2012, the total insurance business would touch $ 60 billion size. At last I am concluding by project with a very famous saying: “Don’t wait; the time will never be just right. Start where you stand and work with whatever tolls you may have at your commands and the better tolls will be found as you go a long”. -William Surds

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ANNEXURE – I

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REFERENCES AND BIBLIOGRAPHY
I. Books

a) Kathryn Harrigan, Joint Ventures, Alliances and Corporate Strategy b) Dharmendra Kumar, Rahul Singh, Indian Insurance Report, Series-I c) Tripathy and Pal, Insurance Theory and Practices
II. Newspapers

a)

March 12, 2010, SBI‘s Insurance Venture gets nod from IRDA, The Economic Times

b) c)

January 29, 2010, Magma, HDI form JV, The Economic Times April 26, 2010, ADAG eyes foreign partner for life, general insurance business, The Live Mint

III.

WebPages
a) b) c) d) e) f) g) h) i) j) k) l) www.google.com www.irda.org www.iciciprulife.com www.bajajallianzlife.co.in www.birlasunlife.com www.hdfcinsurance.com www.indiaprwire.com www.1000ventures.com www.books.google.co.in www.economictimes.com www.livemint.org www.madaan.com

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ANNEXURE-II

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Report on Response Collected From Mr. Vikrant Mehta, VAP Manager, ICICI Prudential, Malad
While having a face to face interview with Mr. Vikrant Mehta, VAP Manager, ICICI Prudential, Malad Branch the following questionnaire round took place in which Mr. Mehta gave his suggestions regarding ICICI prudential: Q1) Could you briefly characterize the current market in India? How has it changed since liberalization efforts began? Ans. In the years since the IRDA Act initiated market reforms, the insurance sector has experienced some remarkable changes. The entry of a large number of Indian and foreign private companies in non-life insurance business has led to greater choice in terms of products and services. Increased consumer awareness of the benefits and importance of insurance and reinsurance has generated many more buyers; and new distribution channels – among them brokers, bancassurance, the Internet, and corporate agents – have provided additional ways of getting products and services to customers. Q2) It was recently seen that IRDA has showed its interest in increasing the foreign stake in Joint Venture from 26% to 49%. So is it true and when this will come into effect? Ans. Yes, it is absolutely true that IRDA is ready to allow the foreign players to increase their stake in Joint Ventures from 26% to 49%. This has been approved by IRDA a long time ago but the problem is that they have not given any specific date of its effectiveness. Q3) What is the role played by your foreign partner Prudential Plc in your Joint Venture? Ans. The joint venture was very important from the point of view of both the company. As Prudential is the leading life insurer in United Kingdom and we have the best

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distribution channel for our promotion our combination has made a great long way in life insurance market in India.

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