Wednesday, July 8, 2009

Why is Insurance sector Sensitive??

Let me highlight few of the happenings during sub prime crisis in insurance sector:

Remember how the CDOs were re-insured by the credit agencies in order to boost up investment even though these CDOs lacked the credibility due to the fact that the high risk securitites were being hidden under the tranches??

That was the main reason for the crash because the sectoral performance was highly over estimated. So bringing in more FDI in this sector at the current point would mean a high chance of the same happening in the Indian Market.

If FDI is brought into this sector at this point of time and the projected growth of the sectors is estimated to be higher than the actual level then we will see speculations growing and bringing a crash in India as well leading to a fall even before India rises to overtake the so called economic leaders at this interesting time of recession.

4 comments:

  1. For this I answer by putting 2 points -
    1. FDI here is sought for improving the backbone of insurance industry in india and money is not sought to promote investments in securities coz there is no scope!!! Insurers in india lack expertise in this field and also for lack of fund they are not able to reach nook and corner of country!!!It is in dis regard FDI is sought.
    2. If there has been a mistake by a country or in better words few fund managers y are we worried same will happen here??and is because of this fear shud we stop prudent behavior when our country is growing leaps and bounds!!! moreover, as said there is a proper mechanism in India, beacuse of the conservative approach, which looks very well after the sector and such systems are null in west!!!

    ReplyDelete
  2. If you are talking about mere upliftment of the sector and not international exposure then what is the reason for asking for FDI? Insurance sector should sought for internal funds or better policies to attract investment from its country itself. I agree with you on one point strongly that Insurance sector is in its nascent stage and it needs to develop itself first to gain international exposure.

    ReplyDelete
  3. And about the mistake of the fund MANAGERS you are talking about it was their intentional effort which led to this fall. They were quite aware of the crash because it is a proven theory that if their is such a huge boom in any sector in world there has to be a correction and if this can be understood by laymans like us then they are quite experienced people to understand the same in a more logical manner. So this proves that it wasnt a mistake and it can happen again in any part of the world whenever greed takes over. Their main motive was to make money in the boom and come out just before the crash but this time most of their time calculation west wrong.

    ReplyDelete
  4. I just went through the exact ammendments sought by Insurance Sector from this budget:

    The Insurance (Amendment) Bill envisages an increase in foreign investment limit to 49 percent from 26 percent; letting foreign re-insurers in; reducing the start-up capital limit for pure health insurance companies to Rs.50 crore from Rs.100 crore; and enabling the regulator to stipulate the expense and commission limits.

    Foreign investment can be called off because of the fact that India has planned an inclusive budget which makes sense at this point of time.

    About the last two points those could have been implemented which would have given a lot of scope for growth of the sector.

    But isn't the sector seeking for Re insurers??

    So few of them deserved to be in the budget consideration according to me.

    That is my viewpoint and I might be wrong due to lack of experience but that is what I feel as of now.

    ReplyDelete