While the initial pandemic-led lockdown impacted business of life insurance companies, recovery has been good in August. For the largest life insurer, Life Insurance Corporation (LIC), growth has been led by its participating and annuity policies amid the sharp fall in bank interest rates. MR Kumar, Chairman, LIC, believes that growth will remain steady and the insurer’s focus on rebalancing the overall portfolio to mitigate reinvestment risk, its special revival campaigns, and good investment opportunities, will hold it in good stead in the coming year. Excerpts from an interview with BusinessLine:
For LIC, premium growth in August came in at 15 per cent YoY (along with good growth in renewal), a notch higher than the industry growth of 14.8 per cent. Which product or types of policies are driving growth? What is your expectation for the full year?
Life insurance business has a direct correlation with the economic activity of the country. The economic activities that came to a standstill during lockdown gradually started looking up once the unlock process started in June. This was reflected in the performance of life insurers. LIC’s resilient and quick response in meeting the expectation of the market resulted in a good recovery.
The drastic fall in bank interest rates have made participating policies popular among our customers. There is already a huge demand for our annuity products which we foresee will increase further in the coming year. Participating and annuity policies contribute a major chunk of our total individual premium. The sale of ULIPs is also picking up. The current pandemic has made term insurance policies popular and our term insurance product is one of the most competitively priced.
We foresee a steady growth in our new business by the end of the fiscal. As of September, we have sold about 61.62 lakh policies, which is 24 per cent lower than last year. We hope to end the year on a positive note. We have recorded first year premium of ₹26,112 crore between April and September which is a growth of 5 per cent. We expect to end FY21 with 15 per cent growth, with first year premiums at about ₹60,000 crore.
Was there an increase in surrender of policies owing to the pandemic?
Interestingly, total surrenders amounted to ₹7,352 crore between April and August this year, down from ₹9,133 crore last year. The decrease in surrender is heartening as it could imply that people are increasingly appreciative of the importance of a life risk cover.
Could you throw some colour on your investment book? How much gains have you made so far on your equity investments? How do see investments panning out in the rest of the fiscal?
LIC’s investment in capital market and G-Secs this year has grown as compared to last year. Between April and September, total investments in G-Sec, SDL, corporate bonds and equity was to the tune of ₹2,63,845.98 crore as against ₹2,44,931.33 crore recorded in the same period last year, implying a growth of 7.7 per cent. In government securities and equities we have found good investment opportunities. In corporate bond investments we are a bit cautious.
Market has been very good. We booked profits of ₹14,857 crore as against ₹11,437 crore recorded in the same period last year (April to September) showing a growth of 30.37 per cent. In the remaining part of this fiscal we plan to invest at least ₹2 lakh crore.
Our 8.25 per cent stake sale in UTI AMC (via IPO) should also fetch us tidy gains.
In the March quarter, LIC saw downgrades of about ₹24,000 crore in its bond investments (has been in the ₹10,000-28,000 crore range in the past few quarters). How will the weakening credit environment impact your bond portfolio this fiscal?
Our net NPA stood at 1.03 per cent as of March, and 0.33 per cent as of July (of our total investment assets). We find that corporates are still fulfilling their obligation for repayment of principal and interest. As a matter of strategy, LIC follows strict due diligences and very few companies have taken moratorium which is not even 2 per cent of our corporate debt.
As of now, LIC does not see any default arising in the debt obligation where LIC has invested. We believe that with the economic activity gaining momentum in the last two months, corporate financials will improve further.
How many Covid claims have you settled so far?
During the current financial year, as on August 31, 2020, a total of 2,67,507 death claims (including Covid claims) have been booked as against 3,18,546 recorded in the similar period last year.
LIC has assured its policyholders that the death claims arising due to Covid-19 shall be treated on par with other causes of death and payments shall be made on an urgent basis. Proactive efforts are being made by LIC officials to settle claims. As on September 28, 2020, we have settled Covid claims to 511 families under 1077 policies amounting to ₹48.90 crore.
Interest rates have been falling sharply and are likely to remain low for a long time. Given that the chunk of LIC’s products are traditional policies, how will you manage the rate risk?
It is a fact that life insurance business is a long term business and the asset liability management and reinvestment risk always remain an area of focus and concern for this line of business. This may become more pronounced in the falling interest rates scenario. In this context, while a significant portion of LIC’s product mix is made of traditional products, we realise the challenge and are constantly working towards rebalancing the overall portfolio with equal focus on linked/ULIP products where the returns are market linked.
While it is our endeavour to ensure optimisation of returns for our policyholders, it is also to be appreciated that ultimately the returns will have to be aligned with the direction of the investment markets (through optimisation of investment strategies and asset liability management techniques). LIC will continue to optimise the interest and investment related risks while rebalancing the overall portfolio in line with available investment opportunities.
Can we expect LIC to hit the primary market in FY21?
The Department of Investment and Public Asset Management (DIPAM) is looking after the IPO aspects of LIC. It is, therefore, not appropriate on our part to give any comments in this regard.