Industry now wants tax sops for insurance JVs

Federation of Indian Chambers of Commerce and Industry (Ficci) has saidthat the limitation of foreign equity still remains a contentious area andhopefully once the market starts performing in the desired manner, necessarychanges will be brought about.

Welcoming the decision, Confederation of Indian Industry (CII) has termedits as the `dawn of a new era’. Ficci has congratulated the regulator for having kept the commitment of issuance of licence before diwali.

Ficci has said that the existing rate of 12.5 per cent was by a calculation done by the LIC which estimated the proportion of the increase in valuationsurplus surplus that was due to true profits and that this same proportionwas applied to corporate tax (which was then 55 per cent) to determine anequivalent rate of tax. There is, therefore, a strong case to reduce the taxrate of 12.5 per cent as the corporate tax rate is now 38.5 per cent, saysFicci.

Ficci has further said that the provisions relating to set off and carry forward of losses should be made applicable to insurance business also,which is not the case hitherto.

Welcoming the recognition of institutions for imparting training to agents,CII said, "this would ensure that the insurance companies would have atrained workforce of insurance agents in place to sell their products, whichare expected to be introduced early next year."

Ficci has also welcomed the accreditation granted to about 14 insurancetraining institutes for imparting necessary technical training in thissector to meet the demand of trained personnel by the new private insurancecompanies.

The Insurance Regulatory Development Authority had earlier this week given final clearance to three companies – Reliance General Insurance Company Limited, HDFC Standard Life Insurance Company Limited and Royal Sundaram Alliance Insurance Company Limited. Three other insurance JVs had been granted in principle approval for registration.

Royal Sundaram to kick off next year: The Royal Sundaram Alliance Insurance is proposing to hit the insurance market with a wide variety of products, in the general insurance sector, early next year. The insurance company, which was issued a licence for writing general insurance business, by the Insurance Regulatory and Development Authority (IRDA) on Monday, would be headquartered at Chennai, said Antony Jacob, deputy managing director of the alliance.

According to Jacob, the alliance was in the process of finalising various insurance products and would approach the IRDA for approval in November. The Royal Sundaram Alliance, he said, was also looking at various personal non-life insurance policies, and would enter the market during the first quarter of 2001.

He further said that the joint venture was proposing to set up four regional offices at New Delhi, Chennai, Mumbai and Calcutta. The company would be employing about 70 to 100 persons, during the next couple of months.

About the equity participation in the joint venture company, Mr Jacob said that Royal Sun Alliance would invest Rs 26 crore, while Rs 75 crore would be contributed by Sundaram Finance and its associate companies. The joint venture will have a total equity of Rs 101 crore. Both the partners propose to infuse more funds, as and when necessary.

For both Royal Sun Alliance and Sundaram Finance, it would be a re-entry into the insurance sector in India. Royal Insurance was operating in India before the general insurance industry was nationalised in 1972. Royal Insurance, it might be recalled was the third country to enter India after British companies started writing insurance business, during the pre-independence days. The first insurance company, to set up office in India, was The Alliance. It started operations in 1825. Thereafter, Phoenix set up an office in Calcutta in 1927.

Royal Insurance started Indian operations in 1845, with offices in Calcutta and Mumbai, and was doing profitable business till the general insurance industry was nationalised.

Interestingly, Sundaram Finance, the other joint venture partner, was promoted by Madras Motor and General Insurance (MMGI) in 1954, as non-banking finance company with TS Santhanam as chairman. The MMGI was one of the leading general insurance companies in India before it was taken over by the government, in the aftermath of the nationalisation of the general insurance industry.