LIC scales down equity investment target

Lower premium collection during the first quarter of the current financial year has led the country's largest institutional investor, Life Insurance Corporation (LIC) of India, to revise its equity investment target for 2011-12.

The life insurer now expects to invest Rs 35,000-40,000 crore in equity markets, against the earlier target of Rs 60,000 crore for 2011-12.

“Equity investments depend on various parameters like premium collection, sales of unit-linked plans, term plans and interest income. Across the industry, the premium collection has been negative in the first quarter, largely due to the dip in sales of unit-linked plans. Looking at the present trend, it is highly unlikely that we would be able to match last year's investment figures during 2011-12,” said a senior LIC official.

Equity investments by the insurance behemoth in 2010-11 shrunk 30 per cent to Rs 43,000 crore, compared to Rs 61,500 crore in the previous year. During the April-June period, LIC's premium collection dropped 29 per cent to Rs 13,342 crore from Rs 18,740.4 crore in the corresponding period a year ago.

According to data collected by the Insurance Regulatory and Development Authority (Irda), life insurance industry premium collections were down 28 per cent, primarily on the account of the new regulations by Irda, which had hit sales of unit-linked policies across the industry. In unit-linked insurance plans, 90 to 95 per cent of the funds are deployed in equity.

“In a high interest rate scenario, people generally tend to shift to non unit-linked products. Hence, equity investments, going ahead, are expected to be lower,” he said.

LIC invests eight-10 per cent of its total investment corpus in equity markets. The investment corpus largely depends on total premiums collected, interest income, dividends and claims paid during a financial year.

However, scaling down the target is not related to the recent volatility in the Indian equity market, the official said. “Rather, it is an opportunity for us to make some value purchases, as some stocks are trading at 25-30 per cent discount,” the official said, adding during the last 15 days, the insurance behemoth invested around Rs 2,000 crore in equity markets.

LIC’s total investment in debt and equities during 2011-12 is expected to stand at Rs 1,80,000 crore, down from Rs 1,93,000 crore invested last year.

According to LIC’s Annual report for 2009-10, the total cumulative investment corpus stood at 10 lakh crore. Currently, LIC can invest up to 10 per cent of the capital employed by an investee company, or 10 per cent of the fund size, in a corporate entity, whichever is lower. The capital employed includes share capital, free reserves and debentures or bonds.