A Banker Perspective Ajay Vyas Dy General Manager Central Bank Of India Bharti AXA Life Future Generali Life SBI Life ING Vysya Life Bajaj Allianz Life Metlife Reliance Life Aviva Life ID: 1018938
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1. BANCASSURANCE AND BEYOND – A Banker Perspective Ajay VyasDy. General ManagerCentral Bank Of India
2. Bharti AXA LifeFuture Generali LifeSBI LifeING Vysya LifeBajaj Allianz LifeMetlifeReliance LifeAviva LifeLife Insurance Industry size 2011: `2,87,000 CrExpected Industry size* by 2020: 15,00K - `17,00K Cr Cumulative capital investment: `26 K CrEmployment (direct + indirect): increased from ~8.3lacs in FY2000 to over 32lacs in FY2009Life Insurance penetration (total premium as % of GDP as of 2010) in India stands at 4.4% vis-à-vis Industrialized countries ~8.65% depicting a huge growth opportunityCurrently there are 24 LI players (23 Private & 1 PSU) with many more players lined to enter.2WAVE I - PRIVATE INSURERHDFC LifeMax New York LifeICICI PrudentialKotak LifeBirla SunlifeTATA AIG LifeSahara LifeShriram LifeWAVE II - PRIVATE INSURERWAVE III - PRIVATE INSURERCanara HSBC OBCAegon Religare LifeDLF PramericaStar Union Dai-ichiIndia First LifeEdelweiss Tokio Life* - Source: www.irda.gov.in, BCG report: India Insurance, Turning 10, Going on 20, Swiss Re: Sigma - World Insurance in 20102000-20031956-572004 -2007IDBI Federal2008 -2011Life Insurance Corporation (LIC)Life Insurance Industry – Size & Players
3. Growth of the in the Life insurance Industry in India can be split 3 phases : Sole life insurer phase (Ist phase)LIC - sole life insurer with primary focus on agency distributionHigh growth & investment phase (IInd Phase) Private life insurance enter the sector - sizeable capital investment in setting up: Distribution network, Training, Manpower, Facilities, Solvency requirements, Contact centres, IT & related data centre etc:-Immediate upswing in overall premium generation due to competitionProfitable growth phase (IIIrd phase)Improvement in maximizing capital utilization and consolidation of relatively non-productive unitsBusiness conservation focus to increase renewal premium collection.Surge in long term partnerships with established distribution entities (NBFC/Banks, etc:) to maximize penetration with limited capital investment; Emergence of Bancassurance as a Key EnablerPhase IPhase IIPhase IIIYoY increase in overall premium collection3Phases in Life Insurance Industry
4. Total branches across all scheduled commercial banks in India : over 76,000Increased customer awareness about financial products post globalization.Banks aspiration to offer all financial products under one roof & position “Bank as a ONE STOP SHOP”Opportunity to up-sell & cross-sell para-banking products through the existing banking network.Para-banking activities lead to improved productivity of bank employees & to earn fee-based income.Insurance products offer superior long term benefits both to bank & customer over the relationship period.Emergence of Bancassurance – a Win-Win Proposition for both the Insurer & Bank.SBI & its AssociatesPublic Sector BanksPrivate Sector BanksForeign BanksTotalBranches18,77245,46011,96831676,516Customer baseOver 400 million customersBank network source: RBI profile of banks in India as on 31st Mar 2011; Bancassurance is the sale of Insurance through Bank partner’s distribution networkCross sellLife insuranceUpsellGeneral InsuranceWealth ManagementMutual FundsAsset productsEquity – Demat4Banking Industry in India
5. 5The Bancassurance Opportunity…Banks are major players in the Indian Financial system:76,000 branches (32,000 rural and 14,700 semi urban)Enormous retail account base of 440 mn deposit accountsTotal deposit base of Rs. 1,49,473 billionLarge Structure governed thru’ RegulationsFour Categories of Banks – Foreign Banks, Nationalised Banks, Private Sector Banks and Co-operative Banks catering to distinct customer segmentsOver 2500 Banks spread nationally and geographically Banking Habits of CustomersPropensity to Visit Bank Branches High Trust in the Banking SystemBank Managers looked upon as “Financial Advisors”Real Potential Still to be Unleashed
6. 6The Bancassurance Opportunity…Incremental Financial Household Savings Over 65% of Household financial savings are in short term instruments
7. Advantages for Bank partnerIncreased customer loyalty from offering all financial products & services under one roof – One Stop Financial InstitutionImproved usage of its distribution networkImprovement in sales skills of employees enabling better sale of other banking products & services; Increase in employee productivity & profitabilityInsurance revenues - fee based income Additionally upfront revenues can be utilised for fuelling banks growth aspirations & capital requirementsLong term valuation benefit creation through equity JVs by leveraging the bank brand and presence Advantages for Insurance CompaniesImmediate access to established brand and wide distribution networkAdditional source of premium generationLow operating costs leading to higher efficiencyGeographic advantage: Access to banks exclusive customer baseDemographic advantage: Access to all the customer segmentsAccess to banks captive customer baseIncreased brand awareness through mutual associationProfitable growth opportunity7Bancassurance – a Win-Win Proposition
8. Comparative between other income and profit -2010-11(Rs in Crore)8Bancassurance – a Win-Win PropositionBANKOTHER INCOMEPROFITCBI12651252UNION Bank20392081Allahabad13891423BOI26812488Indian Bank11821714PNB36134433Traditional source of income Shrinking Margins Low Interest Income Capital Requirement – Basel II Threat of NPA
9. InsurerSales & marketing expertise for insurance productsProfit maximization selling insurance productsStrong technical expertise & Product know-howFinancial strengthBrandBankCustomer base and relationshipsHigh footfalls at Bank’s retail outletsDistribution networkLarge sales force.Brand50%50%Insurance Bancassurance partnership and distribution agreement to clearly address:Volume targetsType of products to be soldSharing of margins between product and distributionSharing of CRM systemManagement responsibility of the product factoryRequire solid legal contract / servicing agreementsPartnership Matrix…
10. ArrangementsDescription of the arrangementExamplesCorporate AgencyBank signs a distribution arrangement with the Insurance CompanyMostly prevalent in the marketLIC –Central Bank Of IndiaHDFC Life – Indian BankTata AIG – United Bank of IndiaCross ShareholdingsBank and the insurance company agree to have cross shareholdings between them. A member from each company might join the board of directors of the other companyMostly prevalent in the Japanese marketJoint venture(Brownfield)Bank joins as an equity stake holder in an existing insurance company. Axis Bank – Max New York LifePNB – Metlife (IRDA approval awaited) AcquisitionBank wholly or partially acquires an insurance company.Reliance Life (Reliance Life acquired AMP Sanmar Life) ICBC - AXA(ICBC has acquired 60% stake in AXA Minmetals Insurance group)Manufacturer(Greenfield)Bank starts its own Insurance CompanySBI – SBI LifeHSBC, Canara Bank & OBC – HSBC Life Bank of Baroda , Andhra Bank– India FirstIDBI – IDBI Federal10Partnership arrangements between Banks & Insurers
11. CHANNELAMOUNT OF PREMIUM (IN Cr)2010-112009-102008-092007-082006-07Individual Agents65665.5265289.2555327.5466515.4354605.30Corporate Agents-Banks11062.638688.686737.386329.223363.17% OF TOTAL (13.30)(10.60)(9.69)(7.97)(5.57)Corporate Agents- Others*2957.753510.763380.543461.891825.89Brokers1471.801128.50773.62473.73331.63Direct Selling2016.323389.853310.332642.71235.33TOTAL83174.0382007.0569529.4179422.9760361.3211Bancassurance Growth In IndiaINDIVIDUAL NEW BUSINESS OF LIFE INSURERS - CHANNEL WISE Source: IRDA
12. TransactionsLendingInvestmentProtectionEducationAssets & SavingsHealth / MedicalLifeTravelAccident LifeBANKCustomer Insurance Need matrixATMCASACheckingPhone BankingCredit CardOverdraftBusiness LoansMortgagePersonal LoanVehicle LoanTime DepositsForeign CurrencySharesTrading/FinancingMutual FundsInsurance Products complete the financial relationship of the Bank with the customers
13. Bank ProductInsurance Attachment possibilityProductAdditional Revenue Benefit for the BankCASA Individual LI & Group LI Personal Loan (PL) Group Credit life Home Loan (HL) Group Credit life MSME loan Group Credit life Recurring Deposit (RD) Group Term Plan Fixed Deposit (FD) Group Term Plan Typically a banking customer is sold only individual life insurance products generating “x” revenueBut, a bank customer on an average has 2 to 6 banking productsInsurance can be bundled/attached with all of themThus, opportunity for the bank to generate 2x to 6x revenue through offering multiple insurance products 12345613Revenue maximization through life insurance
14. Distributions servicing in Banking sector to different Customer SegmentsIn-Branch Sales TeamCCPCDedicated Marketing ManagersRelationship ManagersChannels of DistributionsRetail Walk-in customersLoan CustomersHigh Net worth CustomersSMEsNew CustomersCall Centers
15. Key Success Factors…Sales & Distribution ModelCommitment of PartnersProductOfferingsMotivation & Training ofBank StaffSelection of CustomerSegmentsSelection of Partner
16. Selection of right insurance business modelSegmentation of customers and Customization of Insurance products for each.Mobilization of resource & right Corporate visionTraining of Bank’s staffProcess to be fine tuned. (Policy issuance, communication & settlement of claims)Real time MIS & monitoring of businessCustomer grievances & redress mechanism16The Bancassurance……… Way Forward
17. Bancassurance ModelDescriptionRisk ProfileDistribution only(Corporate Agency)Bank ties-up as a Corporate Agent with an insurer and sells the insurance companies products to their retail and commercialbanking customers. Bank receives a commission payment on the insurance products soldBanks take sales regulatory risk, insurers take all manufacturing risks.Joint Venture(Equity JV + CA) Bank buys a equity stake in the insurance company. Bank sells insurance products of its joint venture insurance company. Typically insurers take responsibility for controlling and managing risk. Banks are responsible for distribution, and both take their proportionate share of revenue and profit or loss. The ownership percentage can vary and other more complex structures can be put in place to allow for different service companies, offshore and onshore companies, and captivesBanks take sales regulatory risk and both insurers and banks takemanufacturing risks to the extent they are not reinsuredManufacturerBanks sell and underwrites insurance products via a wholly-owned insurance company.Banks take both sales regulatory risk and manufacturing/ underwriting risk17Prevalent Bancassurance Models in India
18. Capital considerations - Basel and Solvency norms have the potential to cause significant capital pressure for banks that hold a greater than 20% share in any joint ventureBanks have to make their decision on how to make best use of capital - Use it for banking expansion or diversification into insurance.Capital light Brownfield equity structure is the new trend which could address some capital considerations - however it again depends on bank commitment to deliver mutually agreed insurance targets.A core choice is whether to take a risk free distribution income or a risk-bearing and capital-intensive manufacturing model OR a combination of both. Basel III NormsExisting RBI NormCommon equity (after deductions) 4.50%3.6% Conservation buffer2.50%NilCountercyclical buffer0-2.5%NilCommon equity + Conservation buffer + Countercyclical buffer7-9.5%3.6% Tier I (including the buffers)8.5-11%6% Total capital (including the buffers)10.5-13%9% Source: Basel committee documents, RBI; 18Considerations to be made by Bank while choosing the Bancassurance Model
19. 19* - Source: www.irda.gov.in, BCG report: India Insurance, Turning 10, Going on 20, Swiss Re: Sigma - World Insurance in 2010
20. 20* - Source: www.irda.gov.in, BCG report: India Insurance, Turning 10, Going on 20, Swiss Re: Sigma - World Insurance in 2010
21. Increasingly banks are keen on looking to tie up through a Brown Field Equity JVs for a longer term partnership with Insurance companies as it has major advantages:Increase brand awareness : Prolonged brand association - increased new business at record growth ratesValuation benefits : Longer term valuation benefits to both Banks & Insurance companiesCapital requirements : Relatively capital light structure to enter into the lucrative life insurance sectorIRDA to decide on allowing banks to partner with multiple partners:2 Life Insurers & 2 General Insurers2 Health Insurance & 1 ECGCCustomized wealth creation insurance products as per bank partner requirementsBanks consciously moving towards increasing sales of regular premium products21Current Bancassurance market scenario (1/2)
22. Models preferred by Banks:Small & Medium Private Banks – Corporate Agency (CA) modelLarge Private Banks – Equity JV / Manufacturer modelPSU Banks: Medium & Small PSUs -Corporate agency modelLarger PSUs preferring Equity JV / Manufacturer modelAs seen above - Banks with sizeable distribution network are now looking at entering into equity model partnershipsMedium & Small sized PSU Banks with differentiated geographic footprints are coming together to partner for mutually beneficial association (eg: IDBI & Federal bank)22Current Bancassurance market scenario (2/2)
23. Recent examples in the Green Field Equity JV tie ups:Bank of India, Union Bank of India with Daichi, Japan - Star Union Dai-ichi LifeCanara Bank, Oriental Bank of Commerce with HSBC Life - Canara HSBC OBC LifeIDBI Bank, Federal Bank with Aegis- IDBI Federal LifeBank of Baroda, Andhra Bank with Legal & General - India First LifeRecent examples in the Brown Field Equity JV tie ups:Axis Bank tie-up with Max New York Life (10year partnership agreement; Axis bank offered ~4% stake in MNYL; deal valued at approx. 250cr-350cr)Punjab National Bank & Metlife India (Deal yet to be finalized; 10 year partnership agreement; PNB offered ~30% stake (including free & discounted stake) in Metlife India; deal valued at approx. 600Cr)Syndicate Bank currently in the process of finalizing its JV partner (Syndicate bank is scouting for an appropriate insurance partner for Brownfield entry into the life insurance industry; Birla Sunlife) Many other Banks considering entering Life insurance to encash distribution premium and create “Valuation upside”23Recent Joint Ventures & Bancassurance Tie-upsNote - Deal values as per unverified market intelligence
24. Queries7/6/201224European Rail
25. Winning is EverythingThanksNew Initiative Department
26. Appendix
27. Objectives of the venture should be clear and communicated to the Top managementAssessment of the Insurance Partner in terms of :Levels of expertise (in Indian market + globally), investment and/or assets brought committed for the ventureAlignment of cultures and management styles for effective integration and co-operationAbility to develop tailored products with differentiated pricing for bank partnerGlobal ranking & Credibility of the Insurance partner and Bancassurance experienceAssessment of the Bank’s potential with respect to:Number of Points of Presence (PoP) (Bank Branches, ATMs, RRB branches, etc.)Challenge in terms of activation of these PoP’sOperational Sales Model SupportBank employees responsible for driving insurance sales with Manpower support from the Insurance partner Relationship Managers assigned to cover specialized segments/channels of the bank, viz. Wealth Management SMEs, Corporates, Asset business, etc.Consent & support for regulatory (IRDA) certification of the bank employeesSource : TowersWatson -India Bancassurance Benchmarking survey27Considerations to be made by Bank while choosing the Insurance Partner (1/2)
28. Lead generation architecture:Lead generation & capture process to be designed to capture insurance sale opportunities at all bank PoP’sManpower support from Insurer to be knowledgeable about bank branch business & customer profile and be able to engage the bank staff effectively for lead generationInvestment in technology for data base mining, lead management and trackingTraining & developmentAdequate and well planned training architecture for Bank from the Insurance PartnerInsurer investment in a Bancassurance training platform to provide necessary training to the branch staff at various levels & across various curriculum’sOnline training/refresher & knowledge repository for the bank branch staff Performance on Service Delivery parameters with focus on Service & ClaimsCustomer Management & SupportPerformance Management systems viz. Management Information System & ReportsSource : TowersWatson - India Bancassurance Benchmarking survey28Considerations to be made by Bank while choosing the Insurance Partner (2/2)
29. Constituents for an effective Bancassurance PartnershipBancassurance understanding & importance to the bankCommitment & objectives set from the TopStrong Visible LeadershipConsistent focus – Not just flavor of the monthMutually Agreed Target Dedicated Insurance Vertical at the bank with an Insurance head to manage business sourcingIn-house and third party product provisionSimple Multi – channel products agreed with the bankProposition created for mass marketSpecific proposition for High Networth Individuals Effective bundling of productsShared ServicesIntegrated low cost service modelsSingle systemStraight through processingActive external & Internal lead generation at branches & worksitesIncentive/rewards balanced with the banStrong Compliance focus Guided ExecutionDefined targets for the bank branch employee & Financial AdvisorAssess multiple insurance attachment modelsFace to Face, Internet, Direct telephone integrated solutionFace to face representatives for businessFocused sales culturePredict future segment needsBreakthrough PropositionsSimple triggersActive high volume & high quality lead generationCross sell & up-sell supported by core banking product incentivesSource: E&Y Report On Bancassurance - A winning Formula, July 2010The blue boxes highlight the areas where particular differentiation can be achieved29
30. 30Industry Snapshot Key Financials:InsurersGross Written PremiumCapital as onGWP/ Capital Ratio2009-102008-09 31st Mar 102009-10 Bajaj Allianz 114,197 106,245 12,107 9.4 ICICI Prudential 165,319 153,562 47,8713.5 SBI Life 101,040 72,121 10,000 10.1 Reliance Life 66,049 49,325 29,743 2.2 HDFC Standard 70,051 55,647 19,680 3.6 Birla Sun life 55,057 45,776 24,495 2.2 Max New York48,60538,57319,7302.5TATA AIG34,93827,47519,2051.8AVIVA23,78019,92918,8881.3Bharati AXA6,6973,60413,053.5Future Generali5,4151,5267,646.7 (In INR Mn)30
31. Industry Snapshot - Profit and (Loss) breakup31Private InsurersCapital InfusedShareholder Profit & loss (INR Crs)Accumulated Profit / (Loss) in Balance Sheet (INR Mn)YTD Mar 10-11YTD Mar 09-10YTD Mar 10-11YTD Mar 09-10Bajaj Allianz Life1,211 10,570 542. 10,387 (183)ICICI Prudential 4,781 8,076 258 (27,109) (35,185)SBI Life 1,000 3,663 276 6,212 2,549 Reliance Life2,970 (1,293) (284) (28,032) (26,739)HDFC Standard Life2,013 (990) (275) (15,655) (14,665)Birla Sun Life2,450 3,050 (435) (17,225) (20,275)Max New York 19,201940(209)(8290)(10230)Tata AIG18,88518(400)(11580)(16100)
32. * Punjab National Bank has acquired partnership in Metlife. The deal is awaiting IRDA approval post which the shareholding pattern will changeSl. No.InsurersBank ownedIndian Partners(shareholding %)Foreign Partner(shareholding %)Regn. No.Date of RegistrationOperations commenced in 1.Life Insurance Corporation of IndiaNo------5121-Sep-561956-572.HDFC Life Insurance Co. Ltd.NoHDFC Ltd. (72.43%)Standard Life Assurance, UK (26%)10123-Oct-002000-013.Max New York Life Insurance Co. Ltd.NoMax India Ltd. (70%)Axis Bank (4%)New York Life, USA (26%)10415-Nov-002000-014.ICICI-Prudential Life Insurance Co. Ltd.YesICICI Bank Ltd (74%)Prudential , UK (26%)10524-Nov-002000-015.Kotak Life Insurance Co. Ltd.YesKotak Mahindra Bank (74%)Old Mutual, South Africa (26%)10710-Jan-012001-026.Birla Sun Life Insurance Co. Ltd.NoAditya Birla Group (74%)Sun Life, Canada (26%)10931-Jan-012000-017.Tata-AIG Life Insurance Co. Ltd.NoTata Sons (74%)American International Assurance Co., USA (26%)11012-Feb-012000-018.SBI Life Insurance Co. Ltd.YesState Bank of India (74%)BNP Paribas Assurance SA, France (26%)11129-Mar-012001-029.ING Vysya Life Insurance Co. Ltd.NoExide Industries (50%),Gujarat Cements (15%)& Enam (9%)ING Insurance International B.V., Netherlands (26%)1142-Aug-012001-0210.Bajaj Allianz Life Insurance Co. Ltd.NoBajaj Finserv (74%)Allianz, Germany (26%)1163-Aug-012001-0211.Metlife India Insurance Co. Ltd.*YesJ&K Bank (25%), M. Pallonji & Co. (31%) 4 Private investors (18%)Metlife International Holdings Ltd., USA (26%)1176-Aug-012001-0212.Reliance Life Insurance Co. Ltd. (Earlier AMP Sanmar Life Insurance Co. from 3.1.2002 to 29.9.2005)NoReliance Capital (Anil Dhirubhai Ambani Company) (74%)Nippon Life Insurance, Japan (26%)1213-Jan-022001-0232List of Life Insurance Companies in India (1/2)
33. # Reliance Industries Limited (RIL) & Reliance Industrial Infrastructure Limited (RIIL) has acquired Bharti’s stake in Bharti AXA Life. The deal is awaiting IRDA approval post which the shareholding pattern will changeSl. No.InsurersBank ownedIndian Partners(shareholding %)Foreign Partner(shareholding %)Regn. No.Date of RegistrationOperations commenced in 13.AVIVA Life InsuranceNoDabur group (74%)Aviva International Holdings Ltd., UK (26%)12214-May-022002-0314.Sahara Life Insurance Co. Ltd.NoSahara India Pariwar (100%)---1276-Feb-042004-0515.Shriram Life Insurance Co. Ltd.NoShriram Group (74%)Sanlam, South Africa (26%)12817-Nov-052005-0616.Bharti AXA Life Insurance Co. Ltd.#NoBharti Enterprises (74%)AXA Holdings, France (26%)13014-Jul-062006-0717.Future Generali India Life Insurance Company Ltd. NoPantaloon retail ( 25.5%), Sain Advisory services pvt. Ltd. (49%)Generali, Italy (25.5%)1334-Sep-072007-0818.IDBI Fortis Life Insurance Company Ltd. YesIDBI Bank (48%) & Federal Bank (26%)Fortis, Netherlands (26%)13519-Dec-072007-0819.Canara HSBC OBC Life Insurance Company Ltd. YesCanara Bank (51%), Oriental Bank of Commerce (23%)HSBC Insurance, (Asia Pacific) holdings (26%)1368-May-082008-0920.Aegon Religare Life Insurance Company Ltd. NoReligare (44%), Bennett, Coleman & Co (30%)Aegon group, Netherlands (26%)13827-Jun-082008-0921.DLF Pramerica Life Insurance Co. Ltd.NoDLF Limited (74%)Prudential of America, USA (26%)14027-Jun-082008-0922.Star Union Dai-ichi Life InsuranceYesBank of India (48%) & Union Bank of India (26%)Dai-ichi Mutual Life Insurance, Japan (26%)14226-Dec-082008-0923.IndiaFirst life insurance companyYesBank of Baroda (44%)& Andhra Bank (30%)Legal & General Middle East Limited, UK (26%)1435-Nov-092009-1024.Edelweiss Tokio Life InsuranceNoEdelweiss Capital Ltd (74%)Tokio Marine & Nichido Fire Insurance Co., Japan 26%)14710-May-112010-1133List of Life Insurance Companies in India (2/2)
34. Insurance and Banking are two different sectors and are regulated by different entities 34Regulatory environment in India
35. Any Scheduled Commercial Bank can become corporate agent to a life insurance company and earn fee based income providedJV will be allowed for financially strong banks that fulfill the following criterion:In case of where a foreign partner contributes 26% of the equity with the permission of IRDA and Foreign Investment Promotion Board more than one public sector bank or private sector bank can contribute in the equity of the Joint VentureAs subsidiary of a bank or any other bank will not be allowed to join insurance company on risk participationSource : RBI WebsiteNet Worth of the bank > Rs 500crCapital Adequacy Ratio (CAR) > 10% Net profit earned continuously for last 3 yearsThe track record of the subsidiaries, if any of the concerned bank should be satisfactoryNon Performing Asset should be reasonable35RBI norms pertaining to bancassurance (1/2)
36. Banks which are not eligible for joint venture participation as mentioned on Slide 4 can do the followingMake investments up to 10% of the Net Worth of the bank or 50cr whichever is lowerThe investment done is to provide Infrastructure or services support to the insurance companySuch participation shall be treated as investment and should be without any contingent liability for the bankCapital Adequacy Ratio (CAR) > 10% Non Performing Asset should be reasonableSource : RBI Website36RBI norms pertaining to bancassurance (2/2)
37. 37Key features of each model
38. BANK COMMITMENTLowBank’s perspectiveInsurer’s perspectiveAdvantagesDisadvantagesAdvantagesDisadvantagesJoint-venture(Equity partnership) Increased stability of the venture: Long-term partnership, joint interest & aligned incentive structuresAbility to participate in product design and Product customization Dedicated support provided by insurance partner to ensure know-how transferEnhanced profitability: Commissions + Manufacturing marginsLess flexibility to opt outCould be capital intensiveIncreased stability of partnership allowing investments with longer gestation periodsCommon brand providing easier access to captive customer baseIncreased business potential from long-term common interestsIncreased bank employee buy-inIncreased penetration across bank branches & associatesIncreased profit sharing with bankDistribution agreement(Corporate agency) Marginal costsLimited sharing of customer informationCapital gain opportunityFlexibility due to shorter term of partnershipLimited controlNo/Limited profit sharingDirect competition with peer banks for sale of same products (as Life Insurance partner is common)Simpler deal structureLower investment requirementsReduction in unit costs from increased sales volumesShorter tenure of partnershipDecreased bank employee buy-inHigher drain on resourcesBrand & culture diversityHigh38Equity partnership vs. Distribution relationship
39. Pure play equity – 10 year dealsStep up equity - 10 year dealsEquity + Distribution premium - 10 year dealsDistribution premium upfront / premium year on year - 3 – 5 year deals Bank provided with free equity / initial equity at discounted rate Bank partner has skin in the business to deliver commitments In certain scenarios equity reduction can be proposed if business is not delivered Primarily PSU banks are entering equity participation route to create valuation Bank prefers free equity with no or minimal capital investment Bank provided with free equity / initial equity at discounted rate / step up at discounted rate Bank partner has skin in the business to deliver basis minimum business guarantee Incremental equity on business delivery on a terminal basis Structuring methodology to engage bank in delivering the business as per agreed potential Upfront Cash + free equity / initial equity at discounted rate / step up at discounted rate Structuring methodology for bank partner to have skin in the business basis minimum business guarantee Claw backs applied on cash by holding commissions or reduction in equity Usually prevalent in Private or Foreign bank deals Cash paid upfront or structured basis year on year delivery of agreed business Structuring methodology for bank partner to have skin in the business basis minimum business guarantee Claw backs applied on cash by withdrawing commissions until business deliveredDeal Structuring Options39