Mandatory Ulip fund investment proposal may be dropped

The insurance regulator's proposal to make it mandatory for life insurers to invest at least 25 per cent of unit-linked insurance plan (Ulip) funds in government securities (G-Secs) is likely to be dropped in the final norms.

This is after insurers raised concerns about this proposal impacting the returns for policy holders.

In its draft investment regulations, issued in July 2015, the Insurance Regulatory and Development Authority of India (Irdai) had said not less than 25 per cent of a unit-linked insurance fund will be in invested in central government securities. And, that the allocation to other investments should not be more than 25 per cent of the total in each such segregated fund.

AXE EFFECT

• Proposal to make it mandatory for life insurers to invest at least 25% of Ulip funds in G-Secs may be dropped
   
• This is after insurers raised concerns on this proposal hitting returns for policyholder

"After discussions, this proposal is likely to be excluded from the final regulations, which will be brought out in the next few days," said a senior executive in the sector. However, the proposal to have separate fund managers for life funds, pension and group funds, and Ulip funds is likely to be retained, sources said.

Irdai said every fund — life fund, pension, annuity and group fund, and unit-linked segregated fund — must have identifiable fund managers. And, such a manager cannot be common between a life fund, pension and group fund, and a unit-linked fund. However, this will not be applicable till the assets under management (both shareholder and policy holder funds together) cross Rs 1,000 crore for the first time.

When this proposal was brought out, insurers sent a representation through the Life Insurance Council to the regulator. The regulator had also said equity investments only in the CNX 200 or BSE 200 can be considered as approved ones.

In September 2010, Irdai had capped the charges and commissions on Ulips. As a fallout, the average commission in Ulips as a percentage to premiums collected fell to four per cent in FY12 from 10 per cent in FY10. The minimum lock-in was also increased to five years, from three years earlier.

Sectoral sources said the proposal for 25 per cent investment in G-secs was to boost investment by insurers in areas such as infrastructure and related projects. While they invest in these sectors from their traditional funds, Ulip funds primarily invest the bulk of their shares in equity, due to the nature of the product structure.

Ulips constitute 30-35 per cent of the overall product portfolio of insurers.

For some private insurers, it is as high as 75-80 per cent. Those with strong bank partners have a higher share of Ulips.