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Drop in sale of unit-linked products after Sept 1 affects income
LIFE Insurance Corporation's (LIC) net investment in equities has fallen sharply to Rs 9,889 crore in AprilDecember 2010 compared with Rs 26,273 crore a year ago. During this period, the broader industry too cut its exposure to equities, from Rs 47,470 crore a year ago to Rs 21,580 crore, according to data from Life Insurance Council, the association of life insurers in India.
The fall in equity investment has been attributed to drop in sale of unit-linked products after September 1, 2010 and choppy market conditions.
New guidelines on Ulips, issued by the Insurance Regulatory and Development Authority (Irda), came into effect on that date. "We will invest when there is good opportunity to invest. There has been an increase in sale of traditional products -all our Ulips are doing well," said a senior LIC official.
In 2011, LIC's target for investment in equities was between Rs 65,000-75,000 crore. Ulips have a big investment component and are, therefore, a big source of inflows into equities.
In Ulips, 100 per cent of premium can be invested in equities and the investment choice and risk lie with the investor. In the case of traditional products, with opaque investment plans, investment decision and risk lie with the insurance company.
Post-September 1, 2010, there were few products in the market. Each company had two to three products to be sold. LIC has three Ulips at present. Agents also refused to sell Ulips as their commission had dropped significantly.
Equity market in the period April-December 2010 had remained positive as the BSE benchmark index managed to travel from 17,500 level in early April to over 20,000 towards the end of the calendar year. Still, insurance companies didn't pump money in the market.
"Due to change in regulations, product mix has shifted towards traditional plans. More people are buying traditional products. Investment is going more into debt products," said Prashant Sharma, head of investment at Max New York Life Insurance.
As per the latest data, LIC's premium from new business stood at Rs 67,135.32 crore during April-January compared with Rs 49,019.49 crore a year ago. During the period, 22 private life insurers accounted for Rs 27,864.73 crore of new business compared with Rs 26,327.81 crore a year ago.
"Overall flow to equities from insurers is muted than previous year. The macroeconomic environment is not favourable for equity investment. We are waiting for the right opportunity to enter. Plus opportunity cost for cash is pretty good too," the chief investment officer of a private insurance company said.
LIC had pumped over Rs 61,000 crore into the capital market in 2009-10, 50 per cent more than the previous year. In the new guidelines, Irda increased the lock-in period for Ulips from three years to five, and all Ulips other than pension and annuity products were required to provide a minimum mortality cover or health cover.
This has resulted in a slump in Ulips sales, which accounted for more than 90 per cent of sales of life insurance companies. Source :- mydigitalfc
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