Guaranteed Returns

8/4/2019 Guaranteed Returns

1/14

Relevant Input


2/14

Premium Componen

Mortality

Overheads

Savings

Components of Premium and their

impact on return


3/14

Capability in Maximising returns

Clear Underwriting Norms

Effective Cost Control

Efficiency in Fund Management


4/14

Revise

Mortality

Overhead

Savings

Which leads to


5/14

IT IS NOT POSSIBLE TO INDICATEIT IS NOT POSSIBLE TO INDICATE

RETURNS, LEAVE ALONERETURNS, LEAVE ALONE

GUARANTEEING IN THE LONG RUNGUARANTEEING IN THE LONG RUN

The reasons are :

Government has decided to reduce its interest burden on its

borrowings

Interest Rate on Government borrowings depends on

Domestic Inflation Rate

Government Borrowing Program & Fiscal Deficit

Global Interest Rate Scenario

Prevailing Exchange Rates ie. Rs Vz $ etc.


6/14

94-95 95-96 96-97 97-98 98-99 99-00 00-01 NO WINFLATIO N -W PI

(%) 12 .50 8 .10 4 .60 4 .40 5 .90 3 .30 7 .10 5 .03PPF (%) 12 .00 12 .00 12 .00 12 .00 12 .00 12 .00 11 .00 9 .50Post Office Month

Incom e Scheme

(%) 13 .00 13 .00 13 .00 13 .00 13 .00 13 .00 11 .00 9 .25Kisan Vikas Patra

(% C ompounded) 13 .43 13 .43 13 .43 13 .43 13 .43 13 .43 12 .25 9 .50Gold Prices

($/Ounce) 384 .10387.90331 .30294.10278 .60279.10263 .50263.5So urce : Busine ss W orld - 6th a ugu

REAL RET URNS T AKE A HIT

Any projection on PPF interest rate in 2005 ?


7/14

0 . 0 0

2 . 0 04 . 0 06 . 0 08 . 0 0

1 0 . 0 01 2 . 0 01 4 . 0 01 6 . 0 0

94-95

95-96

96-97

97-98

98-99

99-00

00-01

NOW

IN F L A T IO N - W

P P F ( % )

P o s t O f f ic e M oIn c o m e S c h e m

K is a n V i k a s P aC o m p o u n d e d )


8/14

GOVT SECURITIES 50%

( INCLUDING CENTRAL GOVT SECURITIES)

INFRASTRUCUTRE 15%

OTHER APPROVED SECURITIES 20%

OTHER INVESTMENT AS PER PRU. NORMS 15%

This is applicable to all Life Insurance Companies

TO POLICY HOLDERS 90%

TO EQUITY OWNERS OF THE LIFE CO10%

SURPLUS DISTRIBUTION REGULATION


9/14

Q : You may get the returns, but you may decide not to pass

on to Policyholders

Q: Pvt Cos are profit driven, the promoters may take all the

benefits ?

The policy holders funds and the Promoters funds

are two separate pools.

Surplus arising out of Policyholders fund has to be

necessarily distributed as Per IRDA guidelines

Pvt Cos are profit driven and it actually benefits the

policyholders.


10/14

Other arguments

Is it possible for any one to tell what will be the

government borrowing rate , five years from now ?

Mutual fund debt products dont guarantee any

returns NOT even Principal

In mutual fund industry, Debt funds ,the owners are

making losses but the schemes are doing well.


11/14

RISKS OF GUARNATEED RETURNS TO THERISKS OF GUARNATEED RETURNS TO THE

CUSTOMERCUSTOMER

When Interest Rate comes down, in order to maintain

the rate, funds get invested at Higher Risk Instrument

Higher Returns may be paid at the cost of others-

Leading to Unfair practices - Regulator will step in

Higher Assured Returns means Promoters may need to

pump in additional money. ( CanBank MF Schemes,MIPs of UTI etc..)


12/14

Income for a Life Insurance company Expenses for Life Insurance Company

Premium Income Commission

Interest Income from Investments Overhead expenses

Claims Payment

Provision for reserves***

Balance - Surplus for distribution as Bonus & Divide

*** -Life insurance cos having guaranteed product have to make higher provision

means = less surplus for distribution as BONUS in the current year

Guaranteed Returns - How it affects current and future bonus


13/14

RISKS OF GUARNATEED RETURNS TO THERISKS OF GUARNATEED RETURNS TO THE

CUSTOMERCUSTOMER

When Interest Rate comes down, in order to maintain

the rate, funds get invested at Higher Risk Instrument

Higher Returns may be paid at the cost of others-

Leading to Unfair practices - Regulator will step in

Higher Assured Returns means Promoters may need to

pump in additional money. ( CanBank MF Schemes,MIPs of UTI etc..)


14/14

Documents

Guaranteed Returns