1. CASE STUDY OF
INTERNATIONAL
BUSINESS
Submitted By:-
Chudasama Rajdeep(51)
Charvi pathak(52)
Mehta Pooja(48)
Palak Jaisval(20)
Neel Thobhani(15)

2. Sun Life Financial and
Indian Economic Surge
1.Case Analysis – International Business
The entry of Sun Life Financials, a leading international financial
services organization into the Indian insurance market is analyzed
here and also the attractiveness of Insurance markets in India and
China is discussed, followed by recommendations to the respective
governments on how to attract more FDI.

3. Q.(1) How is the insurance market in India changing?
Why is India an attractive market for investment?
 Indian insurance is a flourishing industry, with several national and
international players competing to excel.
 Insurance is a federal subject in India. There are two legislations that
govern the sector- The Insurance Act- 1938 and the IRDA Act- 1999.
The insurance sector in India has come a full circle from being an
open competitive market to nationalization and back to a liberalized
market again.

4. 1.Present Scenario:-
 The Government of India liberalized the insurance sector in March
2000 with the passage of the Insurance Regulatory and Development
Authority (IRDA) Bill, lifting all entry restrictions for private
players and allowing foreign players to enter the market with some
limits on direct foreign ownership.
 Under the current guidelines, there is a 26 percent equity cap for
foreign partners in an insurance company. There is a proposal to
increase this limit to 49 percent.
 In the private sector 12 life insurance and 8 general insurance
companies have been registered..

5. 2.Non-Life Insurance Market
 In December 2000, the GIC subsidiaries were restructured as
independent insurance companies. At the same time, GIC was
converted into a national re-insurer.
 In July 2002, Parliament passed a bill, delinking the four
subsidiaries from GIC.
 Presently there are 12 general insurance companies with 4 public
sector companies and 8 private insurers.

6. 3.Re-insurance business
 Insurance companies retain only a part of the risk (less than 10 per
cent) assumed by them, which can be safely borne from their own
funds. The balance risk is re-insured with other insurers.
 In effect, therefore, re-insurance is insurer's insurance. It forms the
backbone of the insurance business. It helps to provide a better spread
of risk in the international market, allows primary insurers to accept
risks beyond their capacity, settle accumulated losses arising from
catastrophic events and still maintain their financial stability.
 Currently, all insurance companies have to give 20 per cent of their
reinsurance business to GIC.

7. 4.Life Insurance Market
 The Life Insurance market in India is an underdeveloped market that
was only tapped by the state owned LIC till the entry of private
insurers. The penetration of life insurance products was 19 percent of
the total 400 million of the insurable population.
 The 12 private insurers in the life insurance market have already
grabbed nearly 9 percent of the market in terms of premium income.
The new business premiums of the 12 private players has tripled to Rs
1000 crore in 2002- 03 over last year. Meanwhile, state owned LIC's
new premium business has fallen.

8.  There are very few opportunities in the world that are as large as the
India opportunity: with a population of almost 1.2 billion, the market
is enormous; the number of skilled, English-speaking people in the
workforce is impressive; and the government has proven to be very
stable.
 Most economists agree that India will have solid, stable growth for the
next 20 to 30 years. Investing at the ground floor of the growth phase
of the Indian economy is a once-in-a-lifetime opportunity. There are
very few investment opportunities that can compare to the Indian
market in the long term.

9. Q2) Why did Sun Life Financials enter the Indian
Market?
 With a huge population base and large untapped market, insurance
industry is a big opportunity area in India for national as well as
foreign investors.
 India is the fifth largest life insurance market in the emerging
insurance economies globally and is growing rapidly.
 This impressive growth in the market has been driven by
liberalization, with new players significantly enhancing product
awareness and promoting consumer education and information.,

10. Research Findings :-
 Total life insurance premium in India is projected to grow Rs
1,230,000 Crore by 2010-11.
 Total non-life insurance premium is expected to increase at a CAGR
of 25% for the period spanning from 2008-09 to 2010-11.
 With the entry of several low-cost airlines, along with fleet expansion
by existing ones and increasing corporate aircraft ownership, the
Indian aviation insurance market is all set to boom in a big way in
coming years.
 Home insurance segment is set to achieve a 100% growth as financial
institutions have made home insurance obligatory for housing loan
approvals.

11.  Health insurance is poised to become the second largest business for
non-life insurers after motor insurance in next three years.
 A booming life insurance market has propelled the Indian life
insurance agents into the ‘top 10 country list’ in terms of membership
to the Million Dollar Round Table (MDRT) — an exclusive club for
the highest performing life insurance agents.

12. Q3) What was the entry mode in India for Sun Financials
and Why?
 Sun Financials made a Foreign Direct Investment in India by
forming a Joint Venture with Aditya Birla Group.
 Sun Life acquired 50% of the equity in Birla Capital
International AMC Limited and Birla Capital International
Trustee Company Limited.
 Sun Life and Aditya Birla Group also established a new sales
and distribution company to market a broad range of financial
products and services across India

13. Reasons for forming Joint Venture:
 To enter into a foreign country
 Sharing risks as well as costs involved in setting up the
business.
 Good brand name and relations of the Local company can be
capitalized.
 Suppliers, distributors and established channel partners of local
company can be utilized.
 Cultural bridge can be minimized
 Joint ventures are a necessity by government
 Profit sharing/market sharing

14. Q4) Compare India & China’s attractiveness
from the perspective of an Insurance & Financial
Service Company
 Life markets in China and India are developing
quickly in parallel.
 POPULATION & GDP GROWTH - Combined,
China and India account for almost 40% of the
world's population, and they have expanded their
economies at a rapid pace over the last five years,
with GDP growth averaging 10.6% in China and 8.7%
in India. Hundreds of millions of people have been
lifted out of poverty, and a large middle class is
emerging. Continued high growth is expected.

15.  PREMIUM INCOME
 Both China and India have seen strong growth in life
insurance premium income In China, the total for the
industry was Y494 billion (US$68 billion) in 2007, a
five-year compound annual growth rate (CAGR) of
17% per year. The Indian industry's premium income
was Rs1.56 trillion (US$34 billion) for the 2006/07
financial year, a five-year CAGR of 26% per year.
The Indian private sector has thrived, with market
share reaching 18% in 2006-2007, or 26% of new life
insurance premiums.

16.  LOCATION
 Despite strong premium growth in general, the pace
across different regions within each country is far
from even. In China, growth has initially been
concentrated in coastal, wealthier areas, with the
western interior less developed, although this is
changing fast.
 For India, while there are no requirements as to
where companies locate operations, the majority of
new players have chosen to be headquartered in
Mumbai, with the rest scattered among the other key
cities across the country.

17.  REGULATIONS
 The first Chinese insurance law was introduced in
1995, and the China Insurance Regulatory
Commission (CIRC) was formally established as the
industry regulator in 1998.
 The Insurance and Regulatory Development
Authority (IRDA), formed by legislation in 1999,
supervises the Indian insurance industry.

18.  DISTRIBUTION
 The geographic vastness of both China and India
requires large distribution networks if companies
want to have significant coverage across the country.
Currently, the major channels for the distribution of
life insurance products in China are individual tied
agency forces, group sales representatives (selling
group products to state-owned and private
enterprises), and bank and post office branches
 In India, the distribution of life insurance is similar,
dominated by tied agents who brought in 89% of the
new business in the 2006-2007 financial year

19.  PRODUCTS
 Savings-oriented products tend to dominate the life
insurance industry in both China and India. Both
markets offer a wide range of traditional nonlinked
(both participating and nonparticipating) and linked
savings products. There has been strong demand for
investment-linked (or unit-linked) products in both
countries, supported by strongly performing equity
markets (at least until late 2007).

20.  In India, fairly simple maturity investment guarantees
are offered with these products, and restrictions on
the use of derivative instruments for managing
market risks have hampered innovation, although
more sophisticated guarantees are likely to emerge.
Investment guarantees are not yet generally offered
with these products in China.

21. The following graphs illustrate the facts mentioned
above.

24. Q5) What would be your recommendations to the
governments of China & India to attract more FDI in
Financials & Insurance Service Companies
 Both India and China have their own set of problems
which need to be addressed to improve their
attractiveness
 Recommendations for India
 Increasing the cap on the amount of foreign
investment in this sector from existing 26% to 49%.
This will result in a more competitive market as the
best practices of the foreign companies will be
implemented here when they enter the market on
their own. There will be more control over operations
and processes will be standardized.

25.  The price structures will have to be in sync with the
risk profiles attached. Obsolete regulations on
insurance pricing will have to be done away with
 Distribution channels need to be more developed to
help penetrate a larger share of the market
 Insurance and Reinsurance will have to be delinked
as the same rules cannot be applied to both.
 Facilitate the penetration of insurance into rural
markets by developing infrastructure and ensuring
that the insurers design products catering to the need
of this largely underserved market.

26.  Recommendations for China
 Transparency regarding policies and the functioning
of various departments of the government needs to
be increased. Entry and exit procedures should also
be made more straightforward and efficient
 The insurance sector is restructuring but the market
is still consolidated by a few large players. The
government should work towards increasing the
competition to help develop a competitive market

27.  Reduce the cost of entering the insurance market by
reducing the amount of capital investment required
 Should work towards building more grass root
economy by facilitating SMEs (not related to the
government) as a supplement to national champions
 Enhance quality information disclosure; Impose
prompt and severe punishment for any infringement
of any requirement, even during market downturns