India’s Canara HSBC OBC Life Outlines Aggressive Growth Plan for 2010

Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd. said it is gearing up for ambitious organic growth in 2010 by tapping into the northern and southern rural markets in India through tie-ups with local banks, as well as its bancassurance model and an enlarged capital base.

An enormous rural population together with a low life insurance penetration rate in rural India, which was less than 2% in 2009, offer the insurer plenty of potential, said Harpal Karlcut, chief executive officer of Canara HSBC, in an interview with BestWeek Asia/Pacific.

"We expect to reach over 8 billion rupees (US$172 million) of gross written premium, including renewals, for the financial year ended March 31, 2010," said Karlcut. "We have also planned to increase our new insurance policy sales by 50%, with an expected total new business premiums of over 10 billion rupees for the financial year 2010-11."

In 2009, Canara HSBC recorded gross written premiums of 5 billion rupees, while new life premiums totaled US$120 million in the last calendar year.

Bancassurance Strategies

While focusing on organic growth and delivering affordable insurance solutions to address the needs of the rural populations, the social sector and economically weaker sections of the society in India, Karlcut said the life insurer has tied up with two regional rural banks (RRBs) for bancassurance.

In India, RRBs were established under the provisions of a September 1975 ordinance and the RRB Act of 1976. The objective of setting up RRBs is to ensure sufficient institutional credit for agriculture and other rural sectors, mobilize financial resources from rural or semi-urban areas and grant loans and advances mostly to small and marginal farmers, agricultural laborers and rural artisans.

RRBs are jointly owned by the government of India, the concerned state government and sponsor banks. The issued capital of an RRB is shared by the owners in the proportion of 50%, 15% and 35%, respectively. The operation of RRBs is limited to areas designated by the Indian government, according to Canara HSBC.

By the end of 2009, Canara HSBC OBC Life formed strategic partnerships with Shreyas Gramin Bank and Pragathi Gramin Bank to expand its market presence in northern India's Uttar Pradesh and in southern India's Karnataka.

According to the government of Uttar Pradesh's census of 2001, the state is the most populous in India with more than 166 million people, accounting for around 16.4% of the country's population. It is also the fourth largest state in geographical area, covering 9% of India, encompassing over 236,000 square kilometers.

Karnataka spreads over an area of around 192,000 square kilometers, with Bangalore as its capital. The state has 27 districts and a population of around 45 million, according to the government of Karnataka.

With a low insurance penetration rate compared to the huge population and a "pretty high" level of wealth in these Indian states, insurers find they are "difficult to reach," said Karlcut, who added the potential market is "exciting."

He explained that "poor people [in India] individually tend to like saving, tend to put money aside, [showing they] have pretty good risk profiles." These features also help the insurer think about what product segments might effectively reach and serve customers in the domestic rural sectors, said Karlcut.

He said that through the tie-ups with the two RRBs, which are sponsored by Canara Bank and act as the corporate agents for distributing the insurer's products through about 550 branches, Canara HSBC will be able to reach more than 4.6 million customers in addition to its existing domestic customer base of 48 million.

Capital Injection

To meet the insurer's expansion plans, its shareholders -- Canara Bank and Oriental Bank of Commerce, the two largest Indian public banks -- together with HSBC Insurance (Asia Pacific) Holdings Ltd. [84722], had earlier infused capital of 1 billion rupees into the insurer, bring its total capital base to 6.25 billion rupees, according to Canara HSBC.

Karlcut said that with its strong capital base and its "successful" bancassurance strategy, the life insurer will work to extend its business coverage, aiming to double its new insurance sales this year.

Established in June 2008, Canara HSBC OBC Life is 51%-owned by Canara Bank, 23% by Oriental Bank of Commerce; and 26% by HSBC Insurance (Asia Pacific) Holdings, the Asian insurance arm of HSBC based in Hong Kong.

The life joint venture operates a pure bancassurance model in India. It has 29 offices across the country providing unit-linked investment and traditional insurance products in 313 locations, including 80 locations in semi-urban and rural areas.

As of Nov. 30, 2009, the insurer said it had gross written premiums of more than 6.76 billion rupees. The number of policies sold stood at around 91,600.

Up to December 2009, Canara HSBC's first-year individual single and non-single premiums were 70 million rupees and 4.16 billion rupees, respectively. Its group single premiums were 25 million rupees, according to the Insurance Regulatory and Development Authority of India.

(By Rebecca Ng, Hong Kong news editor: [email protected])