Tata, AIG to infuse Rs 600 cr in life insurance JV

The promoters of Tata AIG Life Insurance are expected to infuse Rs 600-700 crore capital in the venture during the current financial year.

“Both our partners are committed to the life insurance business. We will try to bring down our capital requirement for 2009-10, but the company will need around Rs 600-700 crore,” said Vivek Sood, chief financial officer, Tata AIG Life Insurance.

The capital infusion would be in proportion to the shareholding. While the Tata group holds 74 per cent in the venture, American Insurance Group (AIG) has a 26 per cent stake.

The capital is required mainly to maintain solvency margin and to meet the strain arising from the new business growth. The company has increased its branches to 400 in the last couple of years. It has also recruited 2,500 direct employees during the last financial year.

Sood added that the company would break even in 2012. Tata AIG Life started operation in 2001. It reported a loss of Rs 500 crore in 2008-09, as against Rs 300 crore in 2007-08. “We are ramping up our operations and are not concentrating on consolidation at the moment,” said Sood.

The management expense ratio of the company has gone up to 30 per cent during the last financial year. “We are taking certain initiatives such as making the headcounts more productive, changing our business structure to bring down the expense ratio to 22 per cent. Our focus, going forward, will be to leverage on the existing workforce, as we have recruited a substantial number last year,” said Sood.

Although private life insurance companies have reached their eighth year of operation, their capital requirements remain high. Also, the current changes such as a cap on the charges of unit-linked plans, the Swaroop committee’s recommendation of moving towards no-commission model, adopting IFRS from 2011 and the proposed direct tax code has put pressure on these companies and increased their capital needs.

The Insurance Regulatory and Development Authority has asked six insurance companies to explain the reasons for the increasing management expense.