‘LICN is doing less business than our Raxual branch’  

Mr. PR Mishra, who hails from the Indian state of Orissa, joined LIC in August 1985 in Delhi. After serving at the various Offices of the largest insurance company in the world for 26 years, he was posted as the CEO of LICN in Kathmandu in May 2011. The company has been posting a huge growth and rewarding the shareholders lavishly, especially under Mr. Mishra’s leadership.  ShareSansar caught up with him to know more about the company’s plan for the future. An excerpt:

What has been the achievement of LICN since you took over as the CEO in 2011?

Ever since I joined as the CEO, the only thing I have been trying to lay emphasis on is that LICN is here not to do business but to spread the message of importance of life insurance to the Nepalese in the nooks and corners of Nepal.  Business is not our primary concern here; because we have 4,000 branches across India, and we are the largest insurance company in the world with 40 crore policy holders. If we put that in the perspective of a nation, our policy holders form the third biggest country in terms of population after China and India. We are present in more than 12 countries such as the UK, Singapore, Bangladesh, Sri Lanka, Oman, Qatar, Saudi Arbaia, Fiji, Mauritius and a few other countries besides Nepal and India. And our deposit is to the tune of Rs 2 trillion or Rs 20 lakh crore . And, most importantly, we should not forget that LIC is the Government of India undertaking. If we do anything wrong anywhere in the world, the reputation of the Government of India, would be at stake. Hence, our shareholders and policyholders should understand that LICN will not resort to anything that could hurt the reputation of LIC or the Government of India.

Now to talk about our business in Nepal, LICN’s entire business in Nepal is lesser than the business of our branch office at Raxual! And Raxual is just a medium sized branch of LICI.

When I joined LICN in 2011, the market was very small. To expand the market, we invited top insurance agents from India to educate and motivate our agents. Then we started publishing a bi-monthly magazine to educate our customers about the benefits of the insurance schemes. Then we also purchased four ropanis of land in Babarmahal to construct our building. The metropolis has already approved the map and the construction will start soon. The proposed building complex will also boost our image.

Another good thing about our effort to boost the market is that our competitors have also picked up. They are doing very well and we are very happy about it. As I told before, we are not here to make money. That is not our primary objective. What we really want is that no Nepali citizen would die without having the security of a life insurance policy. Nepal has one of the highest accident mortality rates in the world. Natural calamities such as mudslides, floods as well as road accidents are causing a lot of deaths in the country. Since the roads are not developed to the desired extent in Nepal, the annual death rate due to accidents is very high. So we want all the Nepalis to protect their family against such unforeseen events by taking up life insurance policies.

But how could all the Nepalis, most of whom are economically marginalized, afford life insurance policies?

We have made it possible for them. We have started offering the policy with sum assured of Rs 10,000. See the thing is that the poor people need the insurance policy much more than the well off ones.  If a rich man dies, his son will inherit a huge amount from him. But what would happen when  a rickshaw puller or a taxi driver passes away. What would his family get? Hence we have policy to address their need. We also have a group policy for such clients. For instance, if tempo drivers’ association want a group insurance policy for amounts such as Rs 50 thousand or R 1 lakh for each member. We also have a policy for the well off such as Jeevan Anand, Jeevan Tarang with a very high sum assured and reasonable premium.

But if we look at the per capita GDP of Nepal, we can see that the money for the life insurance policy is not a big deal for many.  Nepal has higher per capital GDP compared to other countries though it is highly concentrated in the hands a few people.

Let me explain it this way. What is the cost of a motorcycle here in Nepal? It comes to the tune of Rs 2 lakhs. In India the same motorcycle can be bought for Rs 40,000. Tata Nano is sold for 1.4 lakhs in India and here it costs Rs 10 lakhs. Nevertheless, when I visit small towns and remote villages of Nepal, I see scores of motorcycles there. Motorcycles have become ubiquitous in Nepal. If you can insure a motorcycle for yourself, you can insure yourself, too.  If you can afford fuel for your bike, you should be able to keep aside a certain amount to insure your life as well.  If you can save only Rs 10 on fuel a day, you can save Rs 3,600 a year, which you can use for life insurance policy. We can even offer an endowment policy of Rs 1 lakh with that amount. If you get this policy today, and if anything bad happens to you tomorrow, your family will get Rs 2 lakh, plus some bonus.

So how much market has LICN penetrated in Nepal?

Total market penetration of the life insurance sector is only 6 percent of the total population, and our share is around 1 percent. However, out of the total insurance sold last year, our share is 28 percent. Last year we were Number 1 in terms of the number of the policies sold across the country. Hence, our intention is to reach out to the poorest of the poor.

How is LICN faring in the current fiscal year?

We have been performing very well over the years. This year, too, we are projecting 75 percent growth in business.  But as I have been repeatedly saying, our overarching aim is: Hamro udeshya sabaika lagi jeeven beema (our aim is life insurance for all).

The insurance sector generally, and your company in particular, has been posting astounding profit over the recent years and rewarding the shareholders lavishly. Do you think you can sustain this growth, or the market is heading toward saturation?

I am with LIC for the last 28 and half years. From my experience I can assure you that what India was in 1990s, Nepal is in 2010s. In other words, Nepal is 20 years behind India insofar as the insurance market is concerned.  Better late than never: Nepal has started to witness the rise in the insurance sector since 2010, and it will continue to grow for at least next 20 years. People have started to earn money in this country. Around 26 lakh people are on foreign employment. They are young and earning, and they are remitting. Hence there is no doubt that there will be no looking back for the insurance sector for next two decades. And there is enough space for all seven companies to grow abundantly.

What are the major challenges you see for the growth of the insurance sector in the country?

Reaching out to the people and creating awareness among the people about the benefits of insurance policy is the biggest challenge. Another related challenge is the difficult terrain of the country. Some of the places are so far flung that the cost of reaching those places are very high. It is very difficult for a private company to reach out to the potential customers there – without some assistance/ funding from the governmental or non-governmental sector. Another challenge is related to ethics. See, if you do not follow ethics, you cannot succeed in the business in the long term perspective. If you give false assurance to the customers about the policy then you eventually stand to suffer in the longer run. There were some insurance companies in India, which have collapsed due to wrong ethnical means and mismanagement.

Are you suggesting that the Insurance Board, the regulator, should help in educating the masses to opt for life insurance policy?

The regulator has a lot of duties and constraints. It’s primary task is to regulate the insurance market and develop it. And I think the regulator is doing a very good job in Nepal.

Insofar as the challenge of reaching out to the remote areas and the unethical practices are concerned, I think the insurance companies with good ethnical values themselves should come together and do something about it.

Are you planning anything like that with other companies?

 Yes, we are planning, but the others, too, should also come forward. In every meeting with the other stakeholders, I, as a senior member in the sector, tell them that insurance is not about making money,  it is more about a business of humanitarian relationship. In India, we do not even spend much money on publicity. We know that if we settle death claim properly, it is a better publicity than placing an advertisement in media. If you settle a claim properly, the concerned person will promote your company to hundreds of people through word of mouth. It not only gives better publicity, but a lot more respect and sense of accomplishment.

Over the recent months, there have been some problems related to the management of the non-life insurance companies in Nepal. How do you see the growth of non-life insurance sector?

Apart from those cases, the real problem for the non-life sector is market saturation — that’s my feeling. What I understand that Non-life insurers are concentrating on vehicles and other small, profitable venture. However, they should actually be focusing on industries. Since the industries portion is missing, I do not see a very bright future for the non-life insurance companies compared to life insurance companies though non-life companies make more profit in the short term.

There is a rumor in the market that the Insurance Board is planning to ask all the listed life insurance companies to shore up their paid-up capital to Rs 200 crore within 5 to 7 years.  Has the regulator told you anything like that?

The regulator has not told anything like that to us, but we have come know that it has sent some recommendation to the Government of Nepal to raise the life insurer’s paid-up capital to Rs 2 arba. If the regulator asks us to raise the paid-up to Rs 2 arba we will be more than happy. It is in the interest of the company and the interest of our policyholders. Bigger capital means better assurance to the public.  If we are told to raise the paid-up then we can invest in infrastructures from the paid-up instead of investing from the public money.

When do you think life insurance companies would be told to shore up their paid-up capital to Rs 2 arba?

It is up to the regulator and the Government of Nepal to decide. Whenever they ask us to raise it, we will do so immediately.

Some investors complain that the shares of LICN are not easily available in the secondary market, and that they are overvalued due to artificially created supply side constraints. Is it purely due to the supply side pressure due to the sentiment of the shareholders to retain the scrips, or some stakeholders, including the brokers, are manipulating the market. What do you say?

Frankly speaking we do not have any role in share market trading. Moreover, LIC in India is not listed in the share market, and we do not have much idea about it. But if what I have understood is correct, the people who hold the shares of the company do not want to dispose them considering the prospect of the company, besides the dividend we are offering. I don’t think that there is any issue with the brokers. The shareholders can see that our business is very transparent, cost effective and growing. LICN is such a big organization and we are managing it with only 125 permanent staff and 20 temporary staff. We have 31 branches and a corporate office. When your cost is so low, you can give better dividend. And the shareholders also know that LICN is a very conservative organization, it will think many times before taking any risky decision, and will always act in their best interest.  I will give you an example. The Insurance Board asked us to value our assets at 6 percent at the most. But we valued it at 5.75
percent.  We kept the value of our assets low so that in the long run if anything happen, we can raise it, and compensate our shareholders. And then we are providing good returns to them. This year we gave 30 percent Dividends, last year we gave 62 percent.

As you said, you initially offered 20 percent bonus shares to the shareholders from the net profit you posted in the last fiscal year, and then went on to offer additional 10 percent for the same fiscal. Given this, plus the impressive quarterly reports for the current fiscal year, can the shareholders expect even better dividend for the current fiscal?

Definitely. But the proposed dividend is subject to the approval of the Insurance Board and LIC India. See, our intention is to give more to those who stand with us.

I continue to tell my friends in Nepal, if you want to invest in the share market, invest in life insurance companies – any of the companies such as LICN, NLIC or any other good company.  This is scrip for which you have to pay bonus to the policyholders every year. The logic is that out of the total profit, 10 percent goes to the shareholders, and 90 percent will be given to the policyholders as bonus. As your business grows, the policyholders continue to grow while the shareholders will remain more or less the same. Hence, the shareholders will get the share of the pie every year.

Following the issuance of the bonus shares for the last fiscal, LICN’s paid-up capital has surged to Rs 65.81 crore. And you plan to add additional Rs 1.40 arba through new policyholders by the end of the current fiscal year. What is your plan for the efficient utilization of such a huge reserve and life insurance fund?

As a rule, the reserve should be two times of your paid-up capital. But our paid-up is only 20 percent of the reserve. Like the capital adequacy ratio for the BFIs, we have a solvency margin. As per the solvency margin in India, your reserve should be 150 times more than your paid-up capital. The idea is that if anything bad happens to the company, you can take out the money from the reserve so that your stakeholders do not have to suffer in the long run. Hence we are planning to increase our reserve for the sake of our policyholders as well as shareholders.

Insofar as the life insurance fund is concerned, we are working as per the Insurance Board guideline. It says that the 75 percent of the funds should be deposited in the commercial banks and 25 percent in the treasury.  And we are allowed to invest maximum of five percent of our deposit in shares — both primary and secondary — and debentures. And we are following the guideline. We have made a very good return especially from our investment in shares. Our total investment in shares comes to the tune of Rs 50 crore, but the present market value of the investment is already around Rs 1 arba. We are planning to purchase number of shares as per our eligibility in days ahead. But let’s be loud and clear, our purpose is not only to make profit from the shares, but also to stabilize the entire share market. We are long-term investor.

There is another rumor in the market than LICN will begin a reinsurance service and launch a mutual fund scheme soon.  Are these rumours baseless or are you actually planning to start these services?

With regard to reinsurance, the rumor is baseless. We won’t go for reinsurance since we do not have that capability or expertise required for that. If other company comes up with reinsurance service, we would like to become their partner. With regards to the mutual fund, yes, we are mulling over it. If the regulator allows us, we want to start our own mutual fund company in line with the mutual fund run by LIC in India. It is better to go for a mutual fund scheme than to keep the money in the bank. Moreover, it is better to invest in such schemes directly than investing through the third party. We may also come up with housing finance in days to come.

In your opinion what are the steps to be taken to reform and expand the stock market?

The market base has to grow. Out of 239 companies, only some 100 companies are traded on average on a day.  Hence the buying pressure is high and the selling pressure is low.  And this  balloons the price of shares of good companies.  You are helpless. The demand is surging and the supply is very low. If more good companies such as those from the real sector join the share market, this pressure will be evenly distributed, and the market will grow and the investors will benefit more.  

One thing the government can do is to increase the capital base of the listed companies. This will also automatically generate more shares and transactions. It will also ultimately strengthen the companies.

But one thing is clear the future of the share market in Nepal looks bright. It might be affected if the banks once again reach the position to give around 12 percent interest on deposit.