"Coming Insurance Meltdown in US" OR "An opportunity in India for Insurance Sector".

What is happening in US?

Insurance! - A next sector in meltdown.
There was a temporary news explosion after the AIG fiasco and it burst into headlines for a few days. But AIG was so promptly bailed out by the government that most investors put it out of their minds. Washington immediately declared the AIG crisis “over.” Wall Street said it was just an “anomaly.” And both insisted that “the rest of the insurance industry is doing just fine.” Not true!

Until now, we were virtually the only ones talking about this. But this week............,

1. ING gasping for air: Shares of this global insurance giant ING have plunged nearly 80% this year. The most recent blood-letting struck after the company announced it lost a staggering 1.6 billion euros ($2 billion) on stocks, bonds, structured credit and real estate. Result: It’s grabbing 10 billion euros as part of a large Dutch government bailout package. Its CFO has resigned in disgrace. And these events raise serious questions as to how long it can survive.
2. Aegon shares smashed! With its stock also down nearly 80% in twelve months, the Dutch owner of Transamerica Corp. just announced it will post a huge third-quarter loss due to investments in Lehman Brothers, Washington Mutual and other assets. It has canceled its dividend. It, too, had to reach for a lifeline — $3.8 billion from the Dutch government. And it may soon ask for more here in the U.S. if Washington lets insurers take their turn in the soup line.
3. Harford shares killed! Hartford Financial Services has lost almost 90% of its value this year — and more than half its market value yesterday alone! Why? Because it just posted a third-quarter net loss of $2.6 billion on writedowns of investments in guess who: Fannie Mae, Freddie Mac, Lehman Brothers and AIG.
4. The biggest U.S. and Bermuda-based insurers have piled up a total of $98 billion in losses — much in still unrealized losses — since the beginning of last year! This could get a lot worse. So beware!

Now look at the scenarios in India!!!

Cabinet gives nod to 49% FDI in insurance

1. The union government has approved the proposal to increase FDI limit in insurance sector to 49 percent. FDI limit in insurance sector is currently 26 percent.
2. The government would also introduce Life Insurance Corporation (Amendment) Bill in the Lok Sabha. It is aimed to increase equity base of LIC from current Rs 5 crore to Rs 100 crore. Interestingly, LIC is not covered under IRDA Act due to special provisions while other insurers have to maintain minimum paid-up capital of Rs 100 crore as per the IRDA Act.

The sector chosen for Nov'08 - Street Smart Newsletter is "Insurance sector".

• Which is one of the emerging sectors expected to be in limelight in the next Bull Run.
• Insurance is most profitable business across world and there are many large cap companies with dominant position from this uncharted territory as far as Indians are concerned.
• In this report we will be covering in depth research on top one or two companies from insurance sector where investment can be made.

- Sharan G, Research Analyst.