NAV-guaranteed insurance products gain currency

With stock markets remaining volatile, guarantees linked to equity investment are gaining popularity in the life insurance space. If last year was the year of guarantee on traditional plans, this year is about guaranteeing the highest net asset value (NAV) for unit-linked insurance plans (Ulips).

Life Insurance Corporation of India (LIC) recently launched Wealth Plus. This plan ensures highest NAV for seven years, while the term of the policy is eight years. Almost all insurance companies have filed similar products with the Insurance Regulatory and Development Authority (Irda).

SBI Life’s Smart Ulip, ICICI Prudential’s Pinnacle and Tata AIG’s Invest Assure Apex are on similar lines.

“The product has fared well in the market. It shows that policyholders are not yet ready to take risk and thus favour products that come with a guarantee,” said Abhijit Gulanikar, chief financial officer, SBI Life.

The largest private insurer has collected over Rs 1,000 crore under this policy. Tata AIG Life has collected Rs 500- 600 crore from its NAV-guaranteed product.

Unlike regular Ulips, which calculate payouts on the basis of NAV at the time of maturity, these policies guarantee the highest NAV with proper asset-liability management. NAV is the current market value of a fund’s net assets divided by the number of outstanding shares.

Birla Sun Life’s Platinum Plus-III was the first product guaranteeing the highest NAV, and it has done well for the insurance company. After the cap on overall charges, it has rechristened the plan as Platinum Premium.

Birla Sun has collected Rs 1,500 crore from this product since its launch in March 2008. “Given the volatility in the market, people want comfort especially when the market goes down,” said Mayank Bhatwal, chief financial officer, Birla Sun Life.

“We maintain extra reserve for guaranteeing NAV. For the first year, we keep aside 0.3 per cent of the total investment,” said Birla Sun Life’s Chief Actuary Fabian Jeudy.

This extra capital is over and above the solvency requirement mandated by the insurance regulator. For instance, on an investment of Rs 100 crore, Rs 1.8 crore is the solvency requirement, while over Rs 3 crore is kept aside to guard the guarantee.

“Allocation in equity can be from 0 to 100 per cent. While it is a combination of equity and debt, there can be no investment in equity alone. We do not recommend people to buy this product,” said Gaurav Mashruwala, a certified financial planner and chief executive officer of the ACE Group.

He added that insurance companies while selling the product push it as an equity product. But the equity investment part can be very less. Insurers assure guarantee with asset allocation, where a part of the investment is kept in bonds, government securities and fixed-income instruments.