LOST COVER Life insurers lose clout in mkt Investment In Stocks Drops In Absence Of Equity-Linked Plans

Mumbai: Investments in shares by the life insurance industry in FY12 has dropped to Rs 26,000 crore from its peak level of over Rs 65,000 crore in FY10. This is a sharp reversal for an industry which was two years back seen as a potential domestic counterweight to foreign institutional investors, thereby reducing volatility in the markets. 

    Industry officials blame changes in regulation that have caused a sharp drop in sales of equity-linked products in life insurance and pensions. As a result, the equity portfolio of life companies in FY12 has shrunk from Rs 5,07,432 crore to Rs 4,73,855 crore. The decline takes into account drop in equity prices with the sensex falling from 19,339 to 17,404. 
    "One reason for the drop in equity investments is that sales of unit-linked insurance plans have dropped for both – private companies and Life Insurance Corporation (LIC). Besides for some companies policies sold in the earlier years are either maturing or being surrendered which also impacts new investments," said Prashant Sharma, chief investment officer, Max Life Insurance. 
    This is also bad news for the government's disinvestment plans where life companies – particularly Life Insurance Corporation – have played a big role. Without Ulips to bring money into equity markets, LIC's incremental investments will have to come from premium collected under traditional plans where less than 10% of the premium is invested in stocks. 
    According to S B Mathur, chief executive of the Life Insurance Council, which released the data compiled from life insurers, the industry has been making a case for encouraging equity investments through pension schemes. "Even low-end government employees can opt for their retirement funds to be invested in equity under the National Pension Scheme. Considering that average premium under pension plans were in the region of Rs 35,000 to Rs 40,000 annually and since this is a voluntary investment, equity should be an option," said Mathur. Since last year insurers have not been able to launch market-linked pension plans because new regulations require insurers to provide guaranteed returns under pension schemes. 
    The new regulations were a setback for insurers who have making a strong pitch for unit-linked insurance plans to be considered a tool for channelizing retail investments into stock markets. Their argument was that unlike mutual funds, which came under pressure to sell assets at distress prices whenever markets tanked because of redemptions, life companies faced no such pressure. They could, therefore, buy shares when FIIs are selling them.