Fdi santu

A PROJECT REPORT
On
STUDY ON
FDI IN THE LIFE INSURANCE SECTOR
IN
INDIA
Submitted in the partial fulfilment of the requirement for the
award of the degree
Of
Master of Business Administration
Submitted by
SANTHOSH GOLLA
Roll.No.121411672032
ST.JOSEPH'S PG COLLEGE
(Affiliated to Osmania University)
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KING KOTI ROAD, Hyderabad-500029 (2011-2013)
DECLARATION
I hereby declare that this project report titled “A STUDY ON
FDI IN THE LIFE INSURANCE SECTOR IN INDIA " submitted
by me to the Department of Business Management, St.Joseph's PG
College, kingkoti Road, Hyderabad, is a bonafide work undertaken
by me and it is not submitted to any other University or
Institution for the award of any degree, diploma/certificate of
published any time before.
Name and address of the student
Santhosh Golla,
H.No.2-2-1103/9/1/A, 3rd
floor, Signature of the student
B.V.Bhagyamma House,
Sanjeevaiah nagar, Nallakunta,
Hyderabad- 500049.
ACKNOWLEDGEMENT
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I sincerely express my deep and heartful gratitude to Dr.V.K.Swamy
principal, and director Professor MallaReddy of St.Joseph's PG
College, Hyderabad for their guidance and valuable suggestions for
successful completion of project.
I am very grateful to the entire management faculty in particular to Mrs
R.Anitha HOD for inspiration and timely support in successful
completion of this project work.
I am deeply indebted to Mrs.Danam Tressa associate professor for
her valuable guidance throughout the course.
I also express my heartful regards to my parents, brother, and to all my
friends for their co-operation and constant source of inspiration.
( Santhosh
Golla)
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ABSTRACT
India is the third most attractive foreign direct investment destination in
the world. The Indian insurance companies offer a comprehensive range
of insurance plans. Due to the growing demand for insurance, more and
more insurance companies are now emerging in the Indian insurance
sector. This study on FDI IN THE LIFE INSURANCE SECTOR IN INDIA
is undertaken with the objectives to Study the pattern of FDI in Life
Insurance Sector, to study the current trend in Insurance sector& the
challenges in the sector, to study the Effect of FDI on 3 Indian Life
Insurance Sector and to study the benefits of FDI in insurance sector.
Secondary data is collected and is analysed using the descriptive
statistics. It was concluded that already about Rs33,000 crore has been
invested as capital and a further Rs50,000-60,000 crore is required
before companies actually breakeven and start making profits. A well-
developed and evolved insurance sector is a boon for economic
development as it provides long-term funds for infrastructure
development at the same time strengthening the risk taking ability of the
country. Nearly 80% of the Indian population is without life, health and
non-life insurance. The insurance sector in India is a colossal one and is
growing at a rate of 15-20%. Together with banking services, insurance
services add about 7% to the country’s Gross domestic product (GDP).
Hence FDI in insurance sectors is very much required for developing
country like India.
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TABLE OF CONTENTS
5
CHAPTER NO PARTICULARS PAGE NO
LIST OF TABLES
I INTRODUCTION 1-5
II REVIEW OF LITREATURE 6-27
III PROFILE OF THE COMPANY 28-36
IV DATA ANALYSIS AND INTERPRETATION 37-43
V CONCLUSIONS AND SUGGESTIONS 44-45
BIBLIOGRAPHY

LIST OF GRAPHS
7
SL.NO TOPICS PAGE NO
1. Top life Insurance Policies in India 37-38
2 Market Share Of Life Insurance
Companies
39
2 Equity Capital of ICICI Prudential
Life Insurance from 2007-12
40
3 Equity Capital of HDFC Standard
Life Insurance from 2007-12
41
4 Equity Capital of SBI Life Insurance
from 2007-12
42
5 COMPARISION OF CAPITAL OF
THREE COMPANIES
43
6 COMPARISION OF FDI’s OF THREE
COMPANIES
43

8
SLNO TOPICS PAGE
NO
1 Market Share Of Life Insurance Companies 39
2 Equity Capital of ICICI Prudential Life Insurance
from 2007-12
40
3 Equity Capital of HDFC Standard Life Insurance
from 2007-12
41
4 Equity Capital of SBI Life Insurance from 2007-12 42
5 COMPARISION OF CAPITAL OF THREE COMPANIES 43
6 COMPARISION OF FDI’s OF THREE COMPANIES 42

CHAPTER I
INTRODUCTION
1.1. Introduction
India is the third most attractive foreign direct investment destination in the world.
The Indian insurance companies offer a comprehensive range of insurance plans.
Due to the growing demand for insurance, more and more insurance companies are
now emerging in the Indian insurance sector. In fact, FDI provides a win – win
situation to the host and the home countries. Both countries are directly interested in
inviting FDI, because they benefit a lot from such type of investment.
India is among the most promising emerging insurance markets in the world. So the
government decided to move ahead with its proposal to hike foreign investment
ceiling in the insurance sector to 49% from the present 26%. A decision in this
regard was taken by the Union Cabinet headed by Prime Minister Manmohan Singh.
"The benefit of this amendment will go to the private sector insurance companies
which require huge amount of capital and that capital will be facilitated with
increase in FDI to 49%" finance minister P Chidambaram told reporters. The
minister also clarified that state-run insurance companies will remain in the public
sector.
With the Cabinet approving the proposal, the Insurance Laws (Amendment) Bill is
likely to be taken up by Parliament for passage in the forthcoming Winter Session.
The bill introduced in RajyaSabha in December 2008 proposes to increase the
foreign direct investment (FDI) limit in the insurance sector to 49 per cent.
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Every company already has 26% FDI. So if you raise the capital from 26% to 49%,
then there is headroom for them to bring in more capital. The estimated capital
requirement in insurance sector is about $5-6 billion in the immediate future
The penetration ratio in life insurance sector is 4.4% and 0.76% in the non-life
segment, meaning a vast majority of the population does not have insurance at all.
While the Cabinet last week approved an amendment to the Insurance Laws
(Amendment) Bill, 2008, to raise the foreign direct investment (FDI) in the sector
from 26% to 49%, the proposal needs to be cleared by Parliament.
Insurance Providers in India
• LIC is a leading Insurance company in India followed by
• ICICI Pru and
• HDFC Standard Life.
The other companies like
• Birla Sun life,
• Bharti Axa,
• Bajaj Allianz, Tata – AIG,
• Kotak,
• Max New york,
• SBI Life, Reliance Life etc also provides insurance solutions to the clients.
1.
2 Need for the Study
• It is important to know the different source of capital, as well as a source of
advanced and developed technologies that are involved in FDI. It is
important to know the investors who bring along best global practices of
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management, FDI’s influence in increasing employment , how FDI helps in
promoting international trade and to understand the reasons how the host
country undergoes development with FDI.
1.3 OBJECTIVES OF THE STUDY
1. To Study what is FDI& types, methods of FDI.
2. To study the current trend in Insurance sector& the challenges in the sector.
3. To study the Effect of FDI on 3 Indian Life Insurance Sector.
4. To study the benefits of FDI in insurance sector.
5. To study, how the FDIs are helping the organisations in their operations.
1.4 RESEARCH METHODOLOGY
RESEARCH DESIGN
It provides a plan of the study, which include statement of the problem, need for
study, review of the previous studies, objectives, definition of concepts, scope,
methodology, sample design, sources of data, tool and techniques for data
collection, limitations and an overview of chapter scheme
1.4.1 SCOPE OF THE STUDY
The present study is carried to know the following aspects. The study aims to
understand the fundamental analysis and its impact on insurance sector. This study
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will provide the relevant information about the economy, industry, and different
companies in life insurance sector.
The study is undertaken with an intention to study FDI in insurance sector and to
find the problems in insurance sector and performance of insurance sector.
1.4.2. SOURCES OF DATA
SECONDARY DATA
Secondary data refers to those data that has already been collected and analyzed by
someone else. In other words secondary data is the information that already exists
somewhere having been collected for another purpose.
Secondary data is collected through
• Published data
• Journals
• web sources
1.4.3 TOOLS & TECHNIQUES
Descriptive tools like tables, percentage analysis and graphs are used to analyse the
data
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1.5 STRUCTURE OF THE STUDY
The study is arranged in a logical pattern.
• Chapter I consists of INTRODUCTION (need for study/significance of the
project, objectives, hypotheses, methodology – scope, sample design,
sources of information, tools and techniques of analysis).
• Chapter II consists of the LITERATURE REVIEW(relevant theoretical and
empirical background of the problem)
• Chapter III consists of THE COMPANY PROFILE
• Chapter IV consists of DATA PRESENTATION, ANALYSIS and
INTERPRETATION based on the collected data from various Primary and
secondary sources.
• Chapter V consists of FINDINGS AND CONCLUSIONS along with
SUGGESTIONS and LIMITATIONS and is concluded with
• BIBLIOGRAPHY and the ANNEXURES
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CHAPTER-2
REVIEW OF LITERATURE
Foreign direct investment
FDI is a direct investment by a corporation in a commercial venture in
another country. A key to separating this action from involvement in other ventures
in a foreign country is that the business enterprise operates completely outside the
economy of the corporation’s home country. The investing corporation must control
10 percent or more of the voting power of the new venture. According to history the
United States was the leader in the FDI activity dating back as far as the end of
World War II. Businesses from other nations have taken up the flag of FDI, including
many who were not in a financial position to do so just a few years ago. The practice
has grown significantly in the last couple of decades, to the point that FDI has
generated quite a bit of opposition from groups such as labour unions. These
organizations have expressed concern that investing at such a level in another country
eliminates jobs. Legislation was introduced in the early1970s that would have put an
end to the tax incentives of FDI. But members of the Nixon administration, Congress
and business interests rallied to make sure that this attack on their expansion plans
was not successful. One key to understanding FDI is to get a mental picture of the
global scale of corporations able to make such investment. A carefully planned FDI
can provide a huge new market for the company, perhaps introducing products and
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services to an area where they have never been available. Not only that, but such an
investment may also be more profitable if construction costs and labour costs are less
in the host country. The definition of FDI originally meant that the investing
corporation gained a significant number of shares(10 percent or more) of the new
venture. In recent years, however, companies have been able to make a foreign direct
investment that is actually long-term management control as opposed to direct
investment in buildings and equipment.FDI growth has been a key factor in the
“international” nature of business that many are familiar with in the 21st century.
This growth has been facilitated by changes in regulations both in the originating
country and in the country where the new installation is to be built. Corporations
from some of the countries that lead the world’s economy have found fertile soil for
FDI in nations where commercial development was limited, if it existed at all. The
dollars invested in such developing-country projects increased 40 times over in less
than 30 years. The financial strength of the investing corporations has sometimes
meant failure for smaller competitors in the target country. One of the reasons is that
foreign direct investment in buildings and equipment still accounts for a vast majority
of FDI activity. Corporations from the originating country gain a significant financial
foothold in the host country. Even with this factor, host countries may welcome FDI
because of the positive impact it has on the smaller economy.
Foreign direct investment (FDI) is a measure of foreign ownership of
productive assets, such as factories, mines and land. Increasing foreign investment
can be used as one measure of growing economic globalization. Figure below shows
net inflows of foreign direct investment as a percentage of gross domestic products
(GDP). The largest flows of foreign investment occur between the industrialized
countries (North America, Western Europe and Japan).But flows to non-
industrialized countries are increasing sharply. Foreign direct investment (FDI) refers
to long term participation by country A into country B.It usually involves
participation in management, joint-venture, transfer of technology and expertise.
There are two types of FDI: inward foreign direct investment and outward foreign
direct investment, resulting in a net FDI inflow (positive or negative) .Foreign direct
investment reflects the objective of obtaining a lasting interest by a resident entity in
one economy (‘‘direct investor’’) in an entity resident in an economy other than that
of the investor (‘‘direct investment enterprise’’).The lasting interest implies the
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existence of a long-term relationship between the direct investor and the enterprise
and a significant degree of influence on the management of the enterprise. Direct
investment involves both the initial transaction between the two entities and all
subsequent capital transactions between them and among affiliated enterprises, both
incorporated and unincorporated.
Foreign direct investment (FDI) is direct investment into production in a
country by a company in another country, either by buying a company in the target
country or by expanding operations of an existing business in that country. Foreign
direct investment is done for many reasons including to take advantage of cheaper
wages, special investment privileges such as tax exemptions offered by the country as
an incentive to gain tariff-free access to the markets of the country or the region.
Foreign direct investment is in contrast to portfolio investment which is a passive
investment in the securities of another country such as stocks and bonds.
As a part of the national accounts of a country, and in regard to the national
income equation Y=C+I+G+(X-M), I is investment plus foreign investment, FDI
refers to the net inflows of investment (inflow minus outflow) to acquire a lasting
management interest (10 percent or more of voting stock) in an enterprise operating
in an economy other than that of the investor. It is the sum of equity capital, other
long-term capital, and short-term capital as shown the balance of payments. It usually
involves participation in management, joint-venture, transfer of technology and
expertise. There are two types of FDI: inward and outward, resulting in a net FDI
inflow (positive or negative) and "stock of foreign direct investment", which is the
cumulative number for a given period. Direct investment excludes investment
through purchase of shares. FDI is one example of international factor movements.
Country attractiveness
There are multiple factors determining host country attractiveness in the eyes
of large foreign direct institutional investors, notably pension funds and sovereign
wealth funds. Research conducted by the World Pensions Council (WPC) suggests
that perceived legal/political stability over time and medium-term economic growth
dynamics constitute the two main determinants.
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Some development economists believe that a sizeable part of Western
Europe has now fallen behind the most dynamic amongst Asia’s emerging nations,
notably because the latter adopted policies more propitious to long-term investments:
“Successful countries such as Singapore, Indonesia and South Korea still remember
the harsh adjustment mechanisms imposed abruptly upon them by the IMF and
World Bank during the 1997-1998 ‘Asian Crisis’ What they have achieved in the past
10 years is all the more remarkable: they have quietly abandoned the “Washington
consensus” [the dominant Neoclassical perspective] by investing massively in
infrastructure projects: this pragmatic approach proved to be very successful.”
Foreign direct investment in India
Starting from a baseline of less than $1 billion in 1990, a recent UNCTAD
survey projected India as the second most important FDI destination (after China) for
transnational corporations during 2010–2012. As per the data, the sectors that
attracted higher inflows were services, telecommunication, construction activities and
computer software and hardware. Mauritius, Singapore, US and UK were among the
leading sources of FDI. According to Ernst & Young, FDI in India in 2010 was $44.8
billion and in 2011 experienced an increase of 13% to $50.8 billion. India has seen an
eightfold increase in its FDI in March 2012. India disallowed overseas corporate
bodies (OCB) to invest in India.
Portfolio investment
Investment that does not involve obtaining a degree of control in a company.
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Foreign Direct Investment
Purchase of physical assets or a significant amount of the ownership (stock) of a
company in another country to gain a measure of management control.
•Foreign Direct Investment– when a firm invests directly in production or other
facilities, over which it has effective control, in a foreign country.
•Manufacturing FDI requires the establishment of production facilities.
•Service FDI requires building service facilities or an investment foothold via capital
contributions or building office facilities.
•Foreign subsidiaries– overseas units or entities.
•Host country– the country in which a foreign subsidiary operates.
•Flow of FDI– the amount of FDI undertaken over a given time.
•Stock of FDI– total accumulated value of foreign-owned assets.
•Outflows/Inflows of FDI– the flow of FDI out of or into a country.
•Foreign Portfolio Investment– the investment by individuals, firms, or public bodies
in foreign financial instruments. Stocks, bonds, other forms of debt differs from FDI,
which is the investment in physical assets.
Methods
The foreign direct investor may acquire voting power of an enterprise in an economy
through any of the following methods:
• by incorporating a wholly owned subsidiary or company
• by acquiring shares in an associated enterprise
• through a merger or an acquisition of an unrelated enterprise
• participating in an equity joint venture with another investor or enterprise
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Foreign direct investment incentives may take the following forms:
• low corporate tax and individual income tax rates
• tax holidays
• other types of tax concessions
• preferential tariffs
• special economic zones
• EPZ – Export Processing Zones
• Bonded Warehouses
• Maquiladoras
• investment financial subsidies
• soft loan or loan guarantees
• free land or land subsidies
• relocation & expatriation
• infrastructure subsidies
• R&D support
• derogation from regulations (usually for very large projects)
Entry Mode
The manner in which a firm chooses to enter a foreign market through FDI.
–International franchising
–Branches
–Contractual alliances
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–Equity joint ventures
–Wholly foreign-owned subsidiaries
Investment approaches:
–Greenfield investment (building a new facility)
–Cross-border mergers
–Cross-border acquisitions
–Sharing existing facilities
Types of Foreign Direct Investment:
An Overview FDIs can be broadly classified into two types:
1 Outward FDIs
2 Inward FDIs
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This classification is based on the types of restrictions imposed, and the various
prerequisites required for these investments.
Outward FDI:
An outward-bound FDI is backed by the government against all types of associated
risks. This form of FDI is subject to tax incentives as well as disincentives of various
forms. Risk coverage provided to the domestic industries and subsidies granted to
the local firms stand in the way of outward FDIs, which are also known as 'direct
investments abroad.'
Inward FDIs:
Different economic factors encourage inward FDIs. These include interest loans, tax
breaks, grants, subsidies, and the removal of restrictions and limitations. Factors
detrimental to the growth of FDIs include necessities of differential performance and
limitations related with ownership patterns.
Other categorizations of FDI
Other categorizations of FDI exist as well. Vertical Foreign Direct Investment takes
place when a multinational corporation owns some shares of a foreign enterprise,
which supplies input for it or uses the output produced by the MNC.
Horizontal foreign direct investments happen when a multinational company carries
out a similar business operation in different nations.
•Horizontal FDI – the MNE enters a foreign country to produce the same products
product at home.
•Conglomerate FDI – the MNE produces products not manufactured at home.
•Vertical FDI – the MNE produces intermediate goods either forward or backward
in the supply stream.
•Liability of foreignness – the costs of doing business abroad resulting in a
competitive disadvantage.
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Advantages of FDI:
• Increase investment level and thereby income & employment.
• Increase tax revenue of government.
• Facilitates transfer of technology.
• Encourage managerial revolution through professional management.
• Increase exports and reduce import requirements.
• Increase competition and break domestic monopolies.
• Improves quality and reduces cost of inputs
Factors affecting FDI
Profitability: Attract where return on investment is higher.
Costs of production: Encouraged by lower costs of production like raw materials,
labour
Economic Conditions: Market potential, infrastructure, size of population, income
level etc.
Government policies: Policies like foreign investment, foreign collaboration,
remittances, profits, taxation, foreign exchange control, tariffs etc.
Political factors: Political stability, nature of important political parties and
relations with other countries.
FII
Foreign Institutional Investors (FIIs) are allowed to invest in the
primary and secondary capital markets in India through the portfolio investment
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scheme (PIS). Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian
companies through the stock exchanges in India.
List of companies in which FII investment is allowed up to limits fixed by
companies as indicated against their names:
Amtek Auto Ltd (74%)
Advanta India Limited 49%
Amtek India Ltd (74%)
Ahmednagar Forgings Ltd (74%)
Anant Raj Industries Ltd. (40%)
ANG Auto Ltd (49%)
Apollo Hospitals (74%)
Aptech Ltd (74%)
Arshiya International Limited (49%)
Bombay Rayon Fashions Ltd (40%)
History
In the years after the Second World War global FDI was dominated by the United
States, as much of the world recovered from the destruction brought by the conflict.
The US accounted for around three-quarters of new FDI (including reinvested
profits) between 1945 and 1960. Since that time FDI has spread to become a truly
global phenomenon, no longer the exclusive preserve of OECD countries.FDI has
grown in importance in the global economy with FDI stocks now constituting over
20 percent of global GDP. Foreign direct investment (FDI) is a measure of foreign
ownership of productive assets, such as factories, mines and land. Increasing foreign
investment can be used as one measure of growing economic globalization. Figure
below shows net inflows of foreign direct investment as a percentage of gross
domestic products (GDP). The largest flows of foreign investment occur between
the industrialized countries (North America, Western Europe and Japan). But flows
to non-industrialized countries are increasing sharply.
Why is FDI important for any consideration of going global?
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The simple answer is that making a direct foreign investment allows companies to
accomplish several tasks:
1 .Avoiding foreign government pressure for local production.
2. Circumventing trade barriers, hidden and otherwise.
3. Making the move from domestic export sales to a locally-based national
sales office.
4. Capability to increase total production capacity.
Opportunities for co-production, joint ventures with local partners, joint
marketing arrangements, licensing, etc;
A more complete response might address the issue of global business
partnering in very general terms. While it is nice that many business writers like the
expression, “think globally, act locally”, this often used cliché does not really mean
very much to the average business executive in a small and medium sized company.
The phrase does have significant connotations for multinational corporations. But
for executives in SME’s, it is still just another buzzword. The simple explanation for
this is the difference in perspective between executives of multinational corporations
and small and medium sized companies. Multinational corporations are almost
always concerned with worldwide manufacturing capacity and proximity to major
markets. Small and medium sized companies tend to be more concerned with selling
their products in overseas markets. The advent of the Internet has ushered in a new
and very different mindset that tends to focus more on access issues. SME’s in
particular are now focusing on access to markets, access to expertise and most of all
access to technology.
The Strategic Logic Behind FDI
•Resources seeking– looking for resources at a lower real cost.
•Market seeking– secure market share and sales growth in target foreign
market.
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•Efficiency seeking– seeks to establish efficient structure through useful
factors, cultures, policies, or markets.
•Strategic asset seeking–seeks to acquire assets in foreign firms that promote
corporate long-term objectives.
Enhancing Efficiency from Location Advantages
•Location advantages- defined as the benefits arising from a host country’s
comparative advantages.- Better access to resources
–Lower real cost from operating in a host country
–Labour cost differentials
–Transportation costs, tariff and non-tariff barriers
– Governmental policies
Improving Performance from Structural Discrepancies
•Structural discrepancies are the differences in industry structure attributes
between home and host countries. Examples include areas where:
–Competition is less intense
–Products are in different stages of their life cycle
–Market demand is unsaturated
–There are differences in market sophistication
Increasing Return from Ownership Advantages
•Ownership Advantages come from the application of proprietary tangible and
intangible assets in the host country.
–Reputation, brand image, distribution channels
–Technological expertise, organizational skills, experience
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•Core competence– skills within the firm that competitors cannot easily imitate or
match.
Ensuring Growth from Organizational Learning
•MNEs exposed to multiple stimuli, developing:
–Diversity capabilities
–Broader learning opportunities
•Exposed to:
–New markets
–New practices
–New ideas
–New cultures
–New competition
The Impact of FDI on the Host Country
Employment
–Firms attempt to capitalize on abundant and inexpensive labour.
–Host countries seek to have firms develop labour skills and sophistication.
–Host countries often feel like “least desirable” jobs are transplanted from
home countries.
–Home countries often face the loss of employment as jobs move.
FDI Impact on Domestic Enterprises
–Foreign invested companies are likely more productive than local
competitors.
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–The result is uneven competition in the short run, and competency building
efforts in the longer term.
–It is likely that FDI developed enterprises will gradually develop local
supporting industries, supplier relationships in the host country.
Investment Risks in India
Sovereign Risk
India is an effervescent parliamentary democracy since its political freedom
from British rule more than50 years ago. The country does not face any real threat of
a serious revolutionary movement which might lead to a collapse of state machinery.
Sovereign risk in India is hence nil for both "foreign direct investment" and "foreign
portfolio investment." Many Industrial and Business houses have restrained
themselves from investing in the North-Eastern part of the country due to unstable
conditions. Nonetheless investing in these parts is lucrative due to the rich mineral
reserves here and high level of literacy. Kashmir on the northern tip is a militancy
affected area and hence investment in the state of Kashmir are restricted by law
Political Risk
India has enjoyed successive years of elected representative government at
the Union as well as federal level. India suffered political instability for a few years
in the sense there was no single party which won clear majority and hence it led to
the formation of coalition governments. However, political stability has firmly
returned since the general elections in 1999, with strong and healthy coalition
governments emerging. Nonetheless, political instability did not change India's
bright economic course though it delayed certain decisions relating to the economy.
Economic liberalization which mostly interested foreign investors has been accepted
as essential by all political parties including the Communist Party of India Though
there are bleak chances of political instability in the future, even if such a situation
arises the economic policy of India would hardly be affected.. Being a strong
democratic nation the chances of an army coup or foreign dictatorship are minimal.
Hence, political risk in India is practically absent.
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Commercial Risk
Commercial risk exists in any business ventures of a country. Not each and
every product or service is profitably accepted in the market. Hence it is advisable to
study the demand / supply condition for a particular product or service before
making any major investment. In India one can avail the facilities of a large number
of market research firms in exchange for a professional fee to study the state of
demand /supply for any product. As it is, entering the consumer market involves
some kind of gamble and hence involves commercial risk.
Risk Due To Terrorism
In the recent past, India has witnessed several terrorist attacks on its soil
which could have a negative impact on investor confidence. Not only business
environment and return on investment, but also the overall security conditions in a
nation have an effect on FDI's. Though some of the financial experts think
otherwise. They believe the negative impact of terrorist attacks would be a short
term phenomenon. In the long run, it is the micro and macro economic conditions of
the Indian economy that would decide the flow of Foreign investment and in this
regard India would continue to be a favourable investment destination.
Sector Specific Foreign Direct Investment in India
Hotel & Tourism: FDI in Hotel & Tourism sector in India
100% FDI is permissible in the sector on the automatic route,
The term hotels include restaurants, beach resorts, and other tourist complexes
providing accommodation and/or catering and food facilities to tourists. Tourism
related industry include travel agencies, tour operating agencies and tourist transport
operating agencies, units providing facilities for cultural, adventure and wild life
experience to tourists, surface, air and water transport facilities to tourists, leisure,
entertainment, amusement, sports, and health units for tourists and
Convention/Seminar units and organizations.
For foreign technology agreements, automatic approval is granted if
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i. Up to 3% of the capital cost of the project is proposed to be paid for
technical and consultancy services including fees for architects, design, supervision,
etc.
ii. Up to 3% of net turnover is payable for franchising and
marketing/publicity support fee, and up to10% of gross operating profit is payable
for management fee, including incentive fee.
Private Sector Banking:
Non-Banking Financial Companies (NBFC)
49% FDI is allowed from all sources on the automatic route subject to guidelines
issued from RBI from time to time.
a.FDI/NRI/OCB investments allowed in the following 19 NBFC activities shall be
as per levels indicated below:
i. Merchant banking
ii. Underwriting
iii. Portfolio Management Services
iv. Investment Advisory Services
v. Financial Consultancy
vi. Stock Broking
vii. Asset Management
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viii. Venture Capital
ix. Custodial Services
x. Factoring
xi .Credit Reference Agencies
xii. Credit rating Agencies
xiii.Leasing & Finance
xiv.Housing Finance
xv. Foreign Exchange Brokering
xvi. Credit card business
xvii. Money changing Business
xviii. .Micro Credit
xix.. Rural Credit
b. Minimum Capitalization Norms for fund based NBFCs:
i) For FDI up to 51% - US$ 0.5 million to be brought upfront
ii) For FDI above 51% and up to 75% - US $ 5 million to be brought upfront
iii) For FDI above 75% and up to 100% - US $ 50 million out of which US $
7.5 million to be brought up front and the balance in 24 months
c .Minimum capitalization norms for non-fund based activities:
Minimum capitalization norm of US $ 0.5 million is applicable in respect of
all permitted non-fund based NBFCs with foreign investment.
d. Foreign investors can set up 100% operating subsidiaries without the condition to
disinvest a minimum of 25% of its equity to Indian entities, subject to bringing in
US$ 50 million as at b) (iii) above(without any restriction on number of operating
subsidiaries without bringing in additional capital)
31

e. Joint Venture operating NBFC's that have 75% or less than 75% foreign
investment will also be allowed to set up subsidiaries for undertaking other NBFC
activities, subject to the subsidiaries also complying with the applicable minimum
capital inflow i.e. (b)(i) and (b)(ii) above. FDI in the NBFC sector is put on
automatic route subject to compliance with guidelines of the Reserve Bank of India.
RBI would issue appropriate guidelines in this regard.
Insurance Sector: FDI in Insurance sector in India
FDI up to 49% in the Insurance sector is allowed on the automatic route subject to
obtaining license from Insurance Regulatory & Development Authority (IRDA)
Telecommunication:
FDI in Telecommunication sector
i. In basic, cellular, value added services and global mobile personal
communications by satellite, FDI is limited to 49% subject to licensing and
security requirements and adherence by the companies (who are investing and
the companies in which investment is being made) to the license conditions for
foreign equity cap and lock- in period for transfer and addition of equity and
other license provisions.
ii.ISPs with gateways, radio-paging and end-to-end bandwidth, FDI is permitted
up to 74% with FDI, beyond 49% requiring Government approval. These
services would be subject to licensing and security requirements.
iii. .No equity cap is applicable to manufacturing activities.
iv. FDI up to 100% is allowed for the following activities in the telecom sector:
a .ISPs not providing gateways (both for satellite and submarine cables);
b. Infrastructure Providers providing dark fibre (IP Category 1);
c. Electronic Mail; and
d. Voice Mail
32

The above would be subject to the following conditions:
e. FDI up to 100% is allowed subject to the condition that such companies
would divest 26%of their equity in favour of Indian public in 5 years, if
these companies are listed in other parts of the world.
f. The above services would be subject to licensing and security
requirements, wherever required.
Proposals for FDI beyond 49% shall be considered by FIPB on case to case
basis.
Trading:
FDI in Trading Companies in India
Trading is permitted under automatic route with FDI up to 51% provided it is
primarily export activities, and the undertaking is an export house/trading
house/super trading house/star trading house. However, under the FIPB route:-
i.100% FDI is permitted in case of trading companies for the following activities:
•Exports;
• Bulk imports with ex-port/ex-bonded warehouse sales;
•Cash and carry wholesale trading;
•Other import of goods or services provided at least 75% is for procurement and
sale of goods and services among the companies of the same group and not for
third party use or onward transfer/distribution/sales.
ii. The following kinds of trading are also permitted, subject to provisions of EXIM
Policy:
33

a. Companies for providing after sales services (that is not trading per se)
b. Domestic trading of products of JVs is permitted at the wholesale level for
such trading companies who wish to market manufactured products on behalf of
their joint ventures in which they have equity participation in India.
c. Trading of hi-tech items/items requiring specialized after sales serviced.
d. Trading of items for social sector
e. Trading of hi-tech, medical and diagnostic items.
f. Trading of items sourced from the small scale sector under which, based on
technology provided and laid down quality specifications, a company can market
that item under its brand name.
g. Domestic sourcing of products for exports.
h. Test marketing of such items for which a company has approval for manufacture
provided such test marketing facility will be for a period of two years, and
investment in setting up manufacturing facilities commences simultaneously with
test marketing.
FDI up to 100% permitted for e-commerce activities subject to the condition that
such companies would divest 26% of their equity in favour of the Indian public in
five years, if these companies are listed in other parts of the world. Such companies
would engage only in business to business (B2B) e-commerce and not in retail
trading.
Power:
FDI in Power Sector in India
Up to 100% FDI allowed in respect of projects relating to electricity generation,
transmission and distribution, other than atomic reactor power plants. There is no
limit on the project cost and quantum of foreign direct investment.
Drugs & Pharmaceuticals
34

FDI up to 100% is permitted on the automatic route for manufacture of drugs and
pharmaceutical, provided the activity does not attract compulsory licensing or
involve use of recombinant DNA technology, and specific cell / tissue targeted
formulations.FDI proposals for the manufacture of licensable drugs and
pharmaceuticals and bulk drugs produced by recombinant DNA technology, and
specific cell / tissue targeted formulations will require prior Government approval.
Roads, Highways, Ports and Harbours
FDI up to 100% under automatic route is permitted in projects for construction and
maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels,
ports and harbours.
Pollution Control and Management
FDI up to 100% in both manufacture of pollution control equipment and consultancy
for integration of pollution control systems is permitted on the automatic route.
Call Centres in India / Call Centre’s in India
FDI up to 100% is allowed subject to certain conditions.
Business Process Outsourcing BPO in India
FDI up to 100% is allowed subject to certain conditions.
Special Facilities and Rules for NRI's and OCB's
NRI's and OCB's are allowed the following special facilities:
1. Direct investment in industry, trade, infrastructure etc.
2. Up to 100% equity with full repatriation facility for capital and dividends in the
following sectors.
I.34 High Priority Industry Groups
ii.Export Trading Companies
iii.Hotels and Tourism-related Projects
iv.Hospitals, Diagnostic Centres
35

v Shipping
vi. Deep Sea Fishing
vii. Oil Exploration
viii. Power
ix .Housing and Real Estate Development
x. Highways, Bridges and Ports
xi. Sick Industrial Units
xii. Industries Requiring Compulsory Licensing
3. Up to 40% Equity with full repatriation: New Issues of Existing Companies
raising Capital through Public Issue up to 40% of the new Capital Issue.
4. On non-repatriation basis: Up to 100% Equity in any Proprietary or Partnership
engaged in Industrial, Commercial or Trading Activity.
5. Portfolio Investment on repatriation basis: Up to 1% of the Paid up Value of the
equity Capital or Convertible Debentures of the Company by each NRI. Investment
in Government Securities, Units of UTI, National Plan/Saving Certificates.
6.On Non-Repatriation Basis: Acquisition of shares of an Indian Company, through
a General Body Resolution, up to 24% of the Paid Up Value of the Company.
7.Other Facilities: Income Tax is at a Flat Rate of 20% on Income arising from
Shares or Debentures of an Indian
36

CHAPTER III
INDUSTRY PROFILE
FDI in Insurance Sector of India
Insurance in India started without any regulations in the nineteenth century.
After the independence, the Life Insurance Company was nationalized in 1956, and
then the general insurance business was nationalized in 1972. Only in 1999 private
insurance companies were allowed back into the business of insurance with a
maximum of 26 per cent of foreign holding (World Bank Economic Review 2000).
Insurance in India used to be tightly regulated and monopolized by state-run
insurers. The Insurance Regulatory and Development Authority (IRDA) Act of 1999
was passed. The insurance business was opened on two fronts. Firstly, domestic
private-sector companies were permitted to enter both life and non-life insurance
business .Secondly, foreign Companies were allowed to participate, albeit with a cap
on shareholding at 26%.Since its inception IRDA has been taking steps to promote
insurance sector and also protect interest of people.
A number of reforms have been introduced by IRDA regarding regulation of agents,
deciding about premium, marketing strategies etc.
Milestones of insurance regulations in the 20th Century:
• 1912 First piece of insurance regulation promulgated – Indian Life Insurance
Company Act, 1912
• 1928 Promulgation of the Indian Insurance Companies Act
• 1938 Insurance Act introduced, the first comprehensive legislation to regulate
insurance business in India
• 1956 Nationalisation of life insurance business in India
37

• 1972 Nationalisation of general insurance business in India
• 1993 Setting-up of the Malhotra Committee
• 1994 Recommendations of Malhotra Committee released
• 1995 Setting-up of Mukherjee Committee
• 1996 Setting-up of an (interim) Insurance Regulatory Authority (IRA)
• 1997 Mukherjee Committee Report submitted but not made public
• 1997 The Government gives greater autonomy to LIC, GIC and its subsidiaries
with regard to the restructuring of boards and flexibility in investment norms
aimed at channelizing funds to the infrastructure sector
• 1998 The cabinet decides to allow 40% foreign equity in private insurance
companies – 26% to foreign companies and 14% to non-resident &investors
(FIIs)
• 1999 The Standing Committee headed by MuraliDeora decides that foreign
equity in private insurance should be limited to 26%
• The IRA Act was renamed as the Insurance Regulatory and Development
Authority (IRDA) Act
• 1999 Cabinet clears IRDA Act
• 2000 President gives assent to the IRDA Act
INSURANCE IN INDIA
• Insurance in India remains at an early stage of development
• It can be postulated that by 2014 the penetration of life insurance in India will
increase to 4.4% and that of non-life insurance to 0.9%
• Indian insurance market is the 19th largest globally and ranks 5th in Asia
38

• The public sector Insurance companies have continued to dominate the insurance
market
• The Indian insurance market it accounts for only 2.5% of premiums in Asia, it
has the potential to become one of the biggest insurance markets in the region.
• The huge probability of the Insurance Laws (Amendment) Bill got an approval
in the parliament to increase the levels of Public Sector Insurers as they are
already struggling to arrest the decline in their market share. Recently, Cabinet
has cleared an important decision to increase Foreign Direct Investments (FDI)
limit from 26 percent, capped in 1999, up to 49 percent in Indian insurance
companies.
• During the last decade (2001-02 to 2011-12), the market share of the public
sector insurers has decreased due to new entrants in the private sector. A Zee
Research Group (ZRG) analysis reveals that Life insurance Corporation (LIC)
has been struggling to maintain the market share in segments, life and non life,
since 1999, when 26 percent FDI was allowed in the insurance sector.
Public sector insurer, LIC, in its bread and butter segment (Life segment) has lost a
significant market share from 98.65 percent in 2001-02 to 71.40 percent in 2011-12.
On the other hand, during the corresponding period, the market share of private
sector life insurers has increased from 1.35 percent to 28.6 percent. With regards to
the market share of LIC in the non-life segment has decreased to 58.46 percent in
2011-12 from 95.91 percent in 2001-02. The massive potential in the Indian life and
non-life insurance sector has encouraged large private financial services companies
to form joint ventures with global insurers. Some of the prominent private players of
this sector include the names of Bajaj Allianz, Birla Sun life, ICICI Prudential, Tata
AIG, HDFC Standard Life, Reliance Life, Max Life and so on.
On the declining market share of public sector insurers, S B Mathur, former
LIC Chairman, opined, “Something has to happen when 24 private players are doing
business in the insurance sector. Increase in FDI limit can lead to greater penetration
of retail market. Consequently, the general and non-life public sectors insurers could
39

feel the rub-off effect mainly due to the cut throat competition from the private
players in the country.”
Mathura’s thought got an endorsement from N S R Chandra Prasad, Chairman and
Managing Director, National Insurance Company (NIC), who averred, “FDI in
insurance will be the threat for the public sector companies because the growth in
the numbers of private players will affect the market share of public sector insurers
in the country.”
Type of Insurance
• General Insurance
• Life Insurance
o whole life plan
o endowment
o term plan
o money back plan
o Unit Linked Insurance Plan (ULIP).
The main types of insurance policies available in the market are:
• Life Insurance: In this policy, the insurance company pays in case of the
demise of the policy holder or at the time of the maturity of the policy. Now
a days a new policy has been launched by insurance companies in which you
will be covered under the insurance policy even after the maturity of the
policy. Read what the different types of life insurance are and which one is
good for you.
40

• Property Insurance: This insurance helps you to prevent the losses against
theft, fire, burglary or any natural calamity like Earthquake, Floods etc.
based on the points mentioned in the policy.
• Health Insurance: Health Insurance consists of a package of various types
of insurance related to health. For example Medical Insurance is one the
major part of health insurance however in most of the cases, dental issues are
not covered in this policy so there is another Dental Insurance policy which
covers dental problems and is also a part of health insurance. The
subcategory of health insurance also involves the injuries or accident at
workplace insurance benefits.
• Auto Insurance: Any financial loss due to accident of a vehicle is covered
under the auto insurance policy. Sometimes the expenses on the medicines
for treating injuries and all other medical expenditure are also covered under
this policy.
• Travel Insurance: Loss of personal belongings while traveling, medical
coverage, delays in the travel are all part of the travel insurance policy.
• Insurance at Amusement Points: This is a one of the new kinds of
insurance policy (not very popular in India) where in you are insured against
the equipments that you are using at the amusement joints. For example: if
you are using boats for an independent boat ride , then they will charge you
with some extra money for an property loss(say $5) and in case of any
property damage you will not be liable to pay any amount required to repair
the damaged property.
• Credit Insurance: This type of insurance pays the loans of the policy holder
in case of any accident of the policy holder or job loss or death.
• Third Party Insurance: This type of insurance covers damages caused by
you (first party) to others (third party). For more details visit third party
insurance.
41

Effect of FDI on Indian Insurance Sector
In the world of increased competition and rapid technological changes, globalization
has played a complimentary role over the past years. Globalization has encouraged
more and more multinationals to adopt FDI. According to Charles W.L. Hill (1998)
“FDI occurs when a firm invests directly in facilities to produce and market a
product in a foreign country”. The growth of FDI is more than the growth of world
trade and world output so role played by FDI in world economics is very vital.
Patterson, N. and Montanjees, M. (2004) say that FDI is the most favoured form of
external finance for the reason that it is non-debt creating, non- volatile and the
outcome depends upon the projects performance initiated by investors. FDI is
advantageous because it facilitates international trade and transfer of technology,
knowledge and skills.
The purpose of this study is to investigate factors that attract FDI. De Mello
(1999) asserts that scope for business in a country, opportunities for expansion,
market size etc are some of the factors that attract FDI. Growth rate of a company or
an industry leads to magnetism of more and more investment as investors know that
their investment is safe enough. According to Dunning, J. (1981) Availability of
valuable and unique resources in an industry such as cheap production capacity,
cheap skilled labour and advanced technology which are necessary for running a
business successfully provides the basis for selecting particular sector or
organization by investors to invest in. By investing in a well established industry or
organization , foreign companies get competitive advantage against the brand image
of existing domestic companies with whom they enter the sector and this also
protect the company from the risk of takeover. This research will also consider the
significance of presence of FDI in an industry or organization. Lloyd, P. (1996)
suggests that FDI provides capital to form strong infrastructure in terms of
expansion of business, distribution network etc. FDI facilitates the organisation
tousle advanced technology to provide quality service to customer. FDI has helped
the country by reducing the level of unemployment as investment made in an
industry creates new jobs for educated population of the country. Borensztein et al,
(1998) says that FDI enables domestic company to adopt foreign company’s
42

management expertise which results in cost savings and best promotion of the
company. Competitor companies also get inspired by great expertise of foreign
companies and hence results in improvement in performance of competitor
companies as well.
Research will also emphasize on the risks of FDI that can’t be overlooked by
the company. Control over the company is the most obvious concern of foreign
players. Getting approval on various issues by foreign players makes the decision
making process complex and time consuming. Another thing related to FDI is its
uncertain nature which contributes to the drawbacks of having FDI in a company.
According to Slogan, J. and Hinde, K. (2007) joint ventures and mergers among
foreign and domestic companies can give rise to one more drawback which is
difference in the corporate cultures of the companies. As companies belong to
different countries the viewpoint of management of both companies differs that
sometimes creates misunderstanding. Insurance sector of India has been chosen as
an industry for the research purpose. India has become the second most preferred
destination for investors around the globe after China. In general, India is a much
liberalized in terms of FDI policies, as FDI has been recognised as one of the
important drivers of economic growth of India. Indian insurance sector has
witnessed great potential for growth.
FDI has a long history in India. The presence of FDI can be noticed in the
Indian economy even prior to 1947. India's mining, trade, plantation, manufacturing
sectors were mostly dominated by foreign firms mostly British. Further, foreign
investment played inevitable role in the early post-independence years and India had
an optimistic attitude towards FDI because it could provide new technology and
capital which was necessary for development. In 1960’s Indian government realised
that FDI was contributing to the problem of foreign exchange crisis through imports
of inputs and repatriation of profits. Then the FERA ACT (Foreign Exchange
Regulation Act) of 1973 was introduced that marked the tightening of the regulatory
regime regarding the management of FDI. (Mattoo,A. and Stern, R.M., 2003)
43

In beginning of 1990s India was suffering from financial crises. The balance
of payment position deteriorated, further devaluation of rupee had a negative effect
on India’s credit rating. Then steps like permission to invest in various new sectors
that had been excluded in the past were taken. These included the infrastructure
sectors like generation of power, construction sector(highway and port) and by the
end of 1990s service sectors like telecommunication, insurance which were
previously controlled and dominated by government was liberalised and policies to
invite FDI were formulated. Thus new rays of light were experienced and the
economy stared experiencing the initial growth with the funds coming in the country
and development taking place.
Since independence it took almost six decades to make the Indian economy
grow towards a developing direction. The European investors consider India as a
preferable destination to invest despite of its ongoing obstacles of political
uncertainties, infrastructural deficiencies and bureaucratic hassles. With the presence
of abundant resources and vast business potential, a company of any size, any origin
which is aspiring to become a global player can achieve success. It is well known
globally that India holds a potential to be one of the top three emerging economies
in the world, so every other nation can make the maximum being a part of Indian
prospects.
Indian insurance sector has experienced different phases from being an open
competitive market to nationalization and back to a liberalized market again. The
milestone of insurance in India was laid in the year 1818 with the establishment of
the Oriental Life Insurance Company in Calcutta.
Market Structure and FDI
Every industry posses a different and unique market structure and it is considered
that the relationship between openness to foreign investment and market structure is
complex. Caves, RE (1996) states that there are empirical evidences which show the
positive relationship between the extent of foreign investment and the degree of
market concentration. It could be said that foreign investment is being attracted by
industries with high concentration and high profitability. The short-run effect of
44

foreign entry is to increase the number of firms and reduce concentration. On the
other hand, the degree of competition among entrants and current firms decide the
long run effects of foreign entry. If current firms are moderately competent then
there would be anhonorable cycles of technological competition and if inefficient
then they would lose market share to foreign firms.
There is evidence that industrial concentration and foreign presence was
positively correlated across industrial sectors and that is because of industrial policy
and its attendant control of production capacities. So it can be said that industry with
high scope and opportunities attracts more FDI than other industries that can be the
reason of uneven distribution of FDI among various industries of a country. Service
sector like Insurance sector of India couldn’t attract large flow of FDI because of
government policies. Before 1999 government policies were framed in order to
protect Indian insurance industry from foreign and private player, so government
intended to maintain monopoly in the sector. As a result monopoly power caused
supply scarcity, poor product-quality, and technological obsolescence. Therefore it
can be said that due to absence of competition whether it is foreign or domestic has
contributed to poor performance. Thus it is not necessary that monopoly leads to
better development of the sector, but in order to maintain control the government
can take necessary steps by keeping track of the latest change trends and performing
as per desired objectives in order to restrict he concentration of industries. Then it
could be said that great openness to liberalization may not a substitute for an active
competition policy. With the reforms of 1999 insurance sector was first time opened
for foreign and private player but still the FDI limit kept restricted to 26%.
45

CHAPTER IV
DATA ANALYSIS AND INTERPRETATION
Top Life Insurance Policies in India
The following table shows the leading life insurance plans available in India:
Insurer Name of policy
Bajaj Allianz iGain III Insurance Plan
i-Secure Insurance Plan
CashRich Insurance Plan
Birla Sun Life Insurance BSLI Wealth Plan
BSLI Guaranteed Wealth Plan
HDFC Standard Life Click2Protect Online Protection Plan
HDFC Life Smart Woman Plan
ICICI Prudential Life
Insurance
ICICI Pru iCare
ING Life Insurance ING Market Shield
ING Star Life
Life Insurance Corporation of
India
Jeevan Ankur
Jeevan Akshay VI
MetLife India Met Monthly Income Plan
Kotak Life Insurance Kotak Ace Investment Plan
Kotak Assured Income Plan
Tata AIA Life Insurance Tata AIA Life Insurance Suraksha Kosh
46

Tata AIA Life Insurance Maha Raksha Supreme
Aviva Life Insurance Aviva iLife
Sahara Life Insurance Sahara Vatsalya Jeevan Bima
Shriram Life Insurance ShriLife
Wealth Plus
Money Back
Shriram Ujjwal Life SP
Bharti AXA Life Insurance Bharti AXA Life eProtect
Future Generali Future Generali Smart Life
IDBI Federal Life Insurance IDBI Federal Termsurance Seniors Insurance Plan
IDBI Federal Wealthsurance Milestone Plan
IDBI Federal Childsurance Dreambuilder Insurance
Plan
IDBI Federal Lifesurance Suvidha Savings
Insurance Plan
IDBI Federal Hospitalization and Surgical Plan
IDBI Federal Incomesurance Endowment & Money
Back Plan
IDBI Federal Loansurance Group Life Plan
IDBI Federal Homesurance Protection Plan
IDBI Federal Bondsurance Advantage Insurance
Plan
IDBI Federal Group Microsurance Plan
Canara HSBC OBC Life
Insurance
Dream Smart Plan
Secure Smart Plan
Grow Smart Plan
Smart Sanchay Plan
Future Smart Plan
AEGON Religare Life
Insurance
iTerm
DLF Pramerica Life
Insurance
WEALTHASSURE
47

Market Share of Life Insurance Companies in India 2012
48

ICICI PRUDENTIAL:
ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank,
one of the foremost financial services companies of India and Prudential plc, one of
the leading international financial services group headquartered in the United
Kingdom. ICICI Prudential was amongst the first private sector life insurance
companies to begin operations in December 2000 after receiving approval from
Insurance Regulatory Development Authority (IRDA).
YEAR ICICI PRUDENTIAL Prudential plc
2011-12 1428.85 370.78
2010-11 1428.46 370.78
2009-10 1428.14 370.78
2008-09 1427.26 370.73
2007-08 1401.11 363.63
Interpretation:
In the year of 2012 ICICI PRUDENTIAL ended up with the first rank among private
insurance companies. The capital of the company has been increasing every year
49

from 2007-12.the foreign promoter investment has increased for two years 07-
08&08-09,&then remained constant for the last three years.
HDFC-Standard:
HDFC Life (HDFC Standard Life Insurance Company) is an Indian private life
insurance company. It is a joint venture between Housing Development Finance
Corporation Ltd (HDFC) and Standard Life plc, provider of financial services in the
UK. It was established after private companies were allowed to enter the insurance
industry in the year 2000. HDFC holds 74% of the equity while Standard Life holds
26%.
YEAR HDFC Stand Standard Life plc
2011-12 1994.88 518.67
2010-11 1994.88 518.67
2009-10 1968 511.68
2008-09 1796 466.96
2007-08 1271 330.46
Interpretation:
For the year 2012 HDFC Stand stood in second place among all the life
insurance companies of india.
We can observe a drastical growth in the year 2007-08,2008-09&2009-10 and
remained constant in the last two years.
50

The equity capital of foreign promoter increased in the same manner.
SBI LIFE:
SBI Life Insurance is a joint venture life insurance company between State Bank of
India (SBI), the largest state-owned banking and financial services company in
India, and BNP Paribas Assurance. SBI owns 74% of the total capital and BNP
Paribas Assurance the remaining 26% of the capital. SBI Life Insurance has an
authorized capital of 2,000 crore (US$364 million)and a paid up capital of 1,000
crore (US$182 million).
YEAR SBI LIFE BNP Paribas
2011-12 1000 260
2010-11 1000 260
2009-10 1000 260
2008-09 1000 260
2007-08 1000 260
Interpretation:
The turnover of the SBI LIFE is constant for the last five years.
The equity captal of the foreign promoter is constant since 2007-08.
51

COMPARISION OF CAPITAL & FDI IN THREE COMPANIES:
YEAR ICICI PRUDENTIAL HDFC Standard SBI LIFE
2011-12 1428.85 1994.88 1000
2010-11 1428.46 1994.88 1000
2009-10 1428.14 1968 1000
2008-09 1427.26 1796 1000
2007-08 1401.11 1271 1000
YEAR Prudential plc Standard Life plc BNP Paribas
2011-12 370.78 518.67 260
2010-11 370.78 518.67 260
2009-10 370.78 511.68 260
2008-09 370.73 466.96 260
2007-08 363.63 330.46 260
Interpretation:FDI is playing a major role in these three companies along with the
other private companies.HDFC Standard has the high capitalization of foreign
currency.
52

CHAPTER V
FINDINGS AND CONCLUSION
FINDINGS:
1. The life insurance industry recorded a premium income of Rs2, 87,072 crore
during 2011-12 as against Rs2, 91,639 crore in the previous year, registering a
negative growth of 1.57 per cent. While private sector insurers posted 4.52 per
cent decline in their premium income, LIC recorded 0.29 per cent decline.
2. Industry experts believe that most of the challenges can be addressed through
higher capitalization.
3. With the increase in stake, foreign players will be able to contribute in the
technical aspects of insurance business.
4. This includes product innovation, claims settlement process, effective
distribution models and other technological best practices.
5. Increase in solvency capital will motivate insurers to ramp up their operations
and expand to smaller cities and towns.
53

CONCLUSIONS:
1. This is a very capital intensive industry. Already about Rs33, 000 crore has
been invested as capital and a further Rs50, 000-60,000 crore is required
before companies actually breakeven and start making profits.
2. A well-developed and evolved insurance sector is a boon for economic
development as it provides long-term funds for infrastructure development at
the same time strengthening the risk taking ability of the country.
3. Nearly 80% of the Indian population is without life, health and non-life
insurance. The insurance sector in India is a colossal one and is growing at a
rate of 15-20%. Together with banking services, insurance services add
about 7% to the country’s Gross domestic product (GDP)
LIMITATIONS:
• I narrowed down my study to FDI in insurance sector.
• I again narrowed it to life insurance companies.
• Since, to study the whole 24 life insurance companies becomes a big task, so
i took three companies to analyse the data.
• I took 5 years (2007-1012) equity share capital of the respected companies,
which is a limitation.
54

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