The Hindu Business Line : Life insurance cos put in more money in stocks than MFs

Mumbai, April 14 Life insurance companies as a group invested more than three times money in Indian stock markets than domestic mutual funds in the last fiscal.

According to industry figures, life insurance companies together made a net investment of about Rs 55, 000 crore in equities as against the total investment of Rs 16,350 crore by mutual funds in 2007-08. During the same period foreign institutional investors, the darlings of Dalal Street, were net investors at Rs 53403 crore.

Insurers have become a force to reckon with in the stock market particularly after the Life Insurance Corporation of India started heavily selling Unit Linked Insurance Plans (ULIPs) two years ago.

LIC alone has invested Rs 30,000 crore in the equity market last fiscal. Of which, according to sources, around Rs 20,000 crore came in through ULIPs and the balance Rs 10,000 crore through traditional products in the last fiscal.

The entry of new players and the expansion in the distribution network of existing insurers meant an increase in sales and a corresponding jump in equity investment, said an analyst.

For most private life insurers, ULIPs account for the bulk of their business, he added.

ULIP also has a lock-in period of three years, which makes it mandatory for an investor to stay in.

Agreeing that there are large investments in ULIP by insurance companies, Mr A.P. Kurian, Chairman, Association of Mutual Funds of India, said that “insurance companies are positioning ULIPs in the `mutual fund space instead of in the insurance space. They are selling ULIP as an investment product and not as an insurance product.”

ICICI Prudential Life Insurance, the largest private life insurer, has invested around Rs 7,400 crore in the stock market, against Rs 4,000 crore in the previous fiscal. The company’s Assets Under Management stands at Rs 28,500 crore, as on end March 2008.

“Around two-third of our Assets Under Management is invested in equity while the balance is in fixed instruments. However, incrementally, around 80 per cent of the investment goes into equity," said Mr Puneet Nanda, Chief Investment Officer, ICICI Prudential Life Insurance.

Bajaj Allianz Life Insurance, another leading insurer, made a net investment of Rs 5,500 crore in the equity market in 2007-08.

“Life insurance companies have significantly expanded their reach through their growing distribution network. They are doing a lot of retail business,” said Mr Shashi Krishnan, Chief Investment Officer, Bajaj Allianz Life Insurance.

A fund manager with a mutual fund said that while insurance sector has registered a faster growth in the recent past, mutual fund industry has not been growing at the same pace. Also mutual funds face higher churning of investors, he said.

Higher commission to distributors is also a key reason that ULIPs are seeing higher sales compared to mutual fund products.

“Insurance companies have been very aggressively mobilising money through ULIPs. They also have the ability to pay higher distribution fees for their products,” said Mr Sanjay Sinha, Chief Investment Officer, SBI Mutual Fund.

Insurance companies have higher capital base and they are also long-term investors said, Mr Sandesh Kirkire, Chief Executive Officer, Kotak Mahindra Asset Mangement Co Ltd.

According to IRDA data the life insurance industry has raked in new business premium of Rs 71,971 crore until February, a growth of 24 per cent over the previous year.