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Insurance+Boom+in+Recession+Times

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Published by: Siddhartha Shankar on Jul 17, 2012
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Global Financial Crises

Genesis 2004-06 • Long period low inflation, cheap money • Rising asset prices – the ‘asset bubble’ • Overleveraging by financial institutions • Subprime lending especially in US and UK • Repackaging of the debt Turn of Tide Mid 2007 • US house prices started falling • Higher foreclosures and credit defaults • Value of securitised debt instruments falls • Pressure on FI balance sheets and doubts on creditworthiness • Tightening credit and liquidity Crises Sep 2008 • Collapse: Lehman, WaMu • Takeovers : Merrill Lynch, Wachovia, HBOS

• Government bailouts : AIG, Fortis, Dexia, RBS
• Country crises : Iceland, Pakistan… • Collapse of confidence • Massive bailout/financial stimulus packages

6 Commodities Crude ( Brent) ( USD/ bbl) Gold ( USD / Oz.(Source : Bloomberg) .3% 9.0 6138.9% 39.3 M acro Indicators 10 Year G Sec Yield Rs.8 -14.0 360.0 960.0 -74.4 -50.0 6357.6 13278.0 425.) Steel ( USD / Tonne) 96.9% 5.5 -62.2 8867.3 1032.7 -66.9 -51. due to events in global financial markets.8 6.0 1820.0 21206.2% 48. Beginning of 2008 Peak During Year Beginning of 2009 % (down) /up from peak Indices Sensex (BSE India ) Nifty (NSE India ) Dow Jones index (USA) Shanghai Composite(China) HangSeng Index (Hongkong) 20287.5 -53.0 13364.0 -54.0 12.0 5269.5 -33.0 -2.4 4.5% 50.7 5497.9 9647.0 36./ $ WPI Inflation ( India) 7.8 14387.4% -45.4 863.8 27812.0 145. In 2009 the impact of a slowing economy and central bank intervention are very visible.The world is witnessing unprecedented times….5 All asset classes were extremely volatile through 2008.9 29558.0 2959.6 882.

making imports more expensive • Foreign investment have slowed down impacted liquidity and investments  Consumer spending slowing down. due to falling incomes and credit contraction  Major job losses  Investment slowdown as era of cheap money is over .Developed economies in recession. Emerging economies also feeling the brunt Developed economies Emerging economies • Fall in demand from developed countries hitting export oriented economies • Emerging market currencies have devalued against USD.

000 14.000 11.1 billion leading to 50% drop in Sensex .000 Apr-08 Jun-08 Sep-08 Dec-08 Sensex 16 13 10 7 4 May-08 Inflation (%) Jul-08 Sep-08 Nov-08  Slow down in GDP growth – expected to be between 6-7 % in 2009-10  Rupee depreciated by 20% during 2008  Forex reserves declined by US$ 56 billion  FII outflow from equity of US$13.Indian Economy impacted. but to a lesser extent GDP Growth (%) 10 9 8 7 Q1 FY06 Q1 FY07 Q1 FY08 Q1 FY09 17.000 8.

Most global economies are in a recession 2nd highest .

. • Life Insurance safest investment bet say majority of the consumers ULIP Still The flavor • 40% of respondents feel ULIPs are the best investment product.AC Nielsen Consumer's optimistic mindset • 83% believe the economy will get better in the next year. Public Sector is safe • Public sector banks are the safest say 50% of the respondents • Returns and protection are the features consumers want in an insurance policy.Customer Sentiment Study . • Only 40% ULIP owners have received any advice from their insurance agents since the time the crisis started. Life Insurance Customer Choice • Life Insurance is almost at par with gold as an investment option.

India is a young country • Currently over 50 crore people below the age of 30 • The group between 20-59 age will grow in next few years giving us demographic dividend Higher working population fuels demand and growth Source: Government statistics. Nomura Research Institute Asian Perspective .

Household income growth will continue to accelerate across India India has strong domestic demand Source: McKinsey’s research on Indian consumerism (At fixed prices of 2000) .

8% currently The household sector continues to be the biggest contributor to total savings ( 68%) .5% of GDP in FY03 to 34.• • • India’s savings have been on a clear up trend From 23.

.

Demographic. India is far behind developed world . Reforms and Globalization to result in long term per capita income growth • India’s beginning its journey on the S Curve • With a Insurance penetration of 4.1% of GDP.

viable and attractive – will play out over next 30-40 years  Near term cyclical growth slowdown now accepted as reality .India is on robust growth path  Sound Fundamentals  Overall demand still expanding  Relatively low export dependence  Low External Commercial Borrowings  High fx reserves ($250bn)  High savings rate (+30%)  FDI increasing at +100%  Strong banking system  Government focus towards growth oriented policy measures  Long term story remains intact.

20% Jun ’06 to Jun ‘08 70.91% -48.11% Market Recovery Analysis over the last 15 years • Historically markets have not only recovered.08% 171.89% -30.05% Sep ’94 to May ’95 Jun ’96 to Dec ’96 Aug ’97 to Jan ’98 Apr ’98 to Dec ’98 Feb ’00 to Oct ’01 Jan ’04 to May ’04 -34.25% 43.65% Rise Apr ’93 to Apr ‘95 BSE Sensex 55.27% -27. significant gains have usually resulted within 24 months of major falls Fall Apr ’92 to Apr ’93 BSE Sensex -53.79% 69.23% 66.09% 0.Historically.90% -29. % fall & rise are in absolute terms .20% May ’06 to Jun ’06 -29.43% -32.27% May ’95 to May ’97 Dec ’96 to Dec ’98 Jan ’98 to Jan ’00 Dec ’98 to Dec ’00 Oct ’01 to Oct ’03 May ’04 to May ’06 26. but usually have posted significant gains within 24 months after major falls over the last 15 years Major falls over the last 15 years have been characterised as falls of greater than 25%. Source: Capitaline.

Sensex has provided robust returns over any 15 year period since 1980 Sensex returns 30% 25% 20% 15% 10% 5% 0% 24% 22% 20% 20% 16% 14% 10% 13% 12% 9% 13% 9% 16% 19% Average 15% 1980-1995 1981-1996 1982-1997 1983-1998 1984-1999 1985-2000 1986-2001 1987-2002 1988-2003 1989-2004 1990-2005 1991-2006 1992-2007 Analysis of investments done on 1st of every year 1993-2008 .

PUT TIME ON YOUR SIDE Equity Funds 5 Yr 3 Yr 1 Yr 0 11.5 68.3 and 5 year periods were found. Source : Fidelity analysis .5 31.1 50 % 100 150 -ve -ve returns returns(Funds) returns +ve As your investment horizon expands.9 100 88. Rolling returns for 1. The probability of loss(in red) was found by dividing the number of negative returns by the total return figures. the probability of losing money reduces The first available adjusted NAV and Sensex values for every month for a time period from 1/10/95 to 1/10/04 have been considered.

1 142.8 200 125 100 1046.8 111.Rupee Cost Averaging Price (NAV) 10 8 7 9 7 5 8 10 Total Amount 1000 1000 1000 1000 1000 1000 1000 1000 8. 8000 You get more for the same amount! • Impossible to precisely time the market • Principle of Equitable Investments at regular intervals • Entry into the market at varying levels • More units can be purchased for same amount at lowered prices thus lowering average purchase price • Instruments like SIP( Systematic Investment Plan) facilitate RCA . 10 NAV for Rs.8 Total units purchased : 1046 Instead of 800 units that could have been purchased at Rs.000 Units 100 125 142.

Indian Households Understand the Long term Needs But Do Not Plan For Those Adequately 97% said we must save. upon the death of chief earner! Only 8% said they can manage as per their current planning! Only 2% said they can manage as per their current planning! Only 3% said they can manage as per their current planning! Only 19% said they can manage as per their current planning! Source: MNYL . if chief earner expires 81% said its very important 69% said its very important 83% said its very important 47% said its very important Only 9% can survive more than 1-year.NCAER Study .

Why ULIP is still a flavor?  Over a long term equity is the best asset class to invest money  Opportunity to participate in the economic growth of the country  It beats inflation  It offers real growth of the money  Option to invest in the best of debt & equity through different funds  Flexibility & maneuverability  Top ups  Diversification & Mitigation of Risks .

Thank You .

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