The Hindu Business Line : LIC hopes to clock 40% growth in first premium collection

Last year, we had a negative growth as the markets were down and the ULIPs had taken a beating… But the market is picking up and ULIPs will also pick up. — Mr Thomas Mathew, Managing Director, LIC.

Remya Nair
N.K. Kurup

Mumbai, July 5 Life Insurance Corporation is a major institutional investor in equity, corporate bonds and Government securities. This year the corporation has investible funds of over Rs 1.75 lakh crore. Mr Thomas Mathew, Managing Director, oversees LIC’s investments. Mr Mathew spoke to Business Line on the corporation’s investment strategies and its plans for the year.

LIC has a huge corpus of funds. Do you have enough investment flexibility to ensure maximum return for your policyholders?

Our investments are guided by the insurance Act and IRDA guidelines. We have three portfolios — Life, ULIP and Pension and Group superannuation portfolio.

For life portfolio, which is the major chunk, we have the pattern prescribed by IRDA from which we cannot deviate. According to the insurance Act, out of the entire life portfolio of investment, 50 per cent has to be invested in Government securities, 15 per cent has to go into infrastructure and for the balance 35 per cent we have the leeway to put into equities, corporate bonds, and mutual funds. As far as ULIP funds are concerned, the choice lies with the customers.

Last year, we invested around Rs 1.62 lakh crore. During the current year (2009-10), we have budgeted for Rs 1.75 lakh crore, of which 50 per cent would be in Government securities.

We put 9-10 per cent of our life portfolio in equities. Last year, we invested around Rs 40,000 crore in equities, when the stock market was down.

This investment has given us good returns as the market has gone up. We make a contrarian call. When the market is down, we buy. We hold it for long-term and sell when we get the maximum price to ensure adequate returns.

Within the IRDA guidelines, LIC has the flexibility to invest. LIC also has internal guidelines and all major decisions are taken by the investment committee, which meets once a month. We have a professional team who study the fundamentals and performance of every stock. On the basis of its advice, the suggestions are taken to the investment committee.

How much would LIC invest in the stock market this year?

We have not purchased aggressively this year. Nevertheless, we have made some good purchases and booked profits also.In the last two-and-half months (up to June 15), we would have invested around Rs 7,000 crore.

LIC’s investments are only in Nifty and Sensex stocks and select mid-cap stocks. In this period, LIC has booked profits of Rs 2,500 crore. Last year, we were not able to book profits as the market was down. We were only purchasing. In 2007-08, we booked Rs 10,000 crore profit. For 2009-10, LIC will invest Rs 50,000 crore in equities.

What is your outlook for the stock market?

India growth story is very strong. FIIs are now back. In the last month alone (April), $4 billion came into the country.

They were all waiting with the money to invest. Now there is a stable government, negative inflation, thrust on infrastructure development…. all these are positive factors which would help revive the economy and the market.

What about your strategic investment in Corporation Bank?

We have 27 per cent stake in Corporation Bank, which is a strategic investment. We don’t want to sell or trade in it. We want to hold it. The investments were made much before the 10 per cent IRDA cap on investments came into effect.

We have invested in most banks. But all are not strategic investments; they are a part of our normal operations.

From an investment point of view, what is your outlook for the corporate bond market?

Last year was very good. We invested Rs 48,000 crore in corporate bonds and we got very good returns.

This year, because of the liquidity in the market, there is a slight fall. The returns are around 8.5 per cent now, against 11-14 per cent last year. But the rates are expected to improve. We would be investing around Rs 50,000 crore in corporate bonds this year.

LIC started the new fiscal on a positive note registering good growth in its first premium income in April and May. What is the target for the full year?

Though we showed a 70 per cent growth in April, it’s not a very good indicator of the year ahead. The real business starts from June-July only. But it is a good beginning. We want to show a 30-40 per cent growth in first premium collection in the current year.

Last year, we had a negative growth as the markets were down and the ULIPs had taken a beating. In the previous years, most of the sales were from ULIPs for all companies including LIC. But the market is picking up and ULIPs will also pick up.

How do you look at the growing competition?

Competition has been there for the last nine-ten years. But we are still the market leaders.

With the brand value of LIC and the changes in product innovation, new distribution channels, expansion of offices, IT and customer service related initiatives, we can take on any competition.

As on March 31, 2009, LIC’s market share in premium was 60.79 per cent and in policies 70.52 per cent.

There are 21 other private life insurance companies.

After 10 years of competition, retaining 60 per cent market share, I think, is a creditable performance.

In any other sector opened to private players, no public sector company would have retained the market leadership as LIC has done.

LIC’s paid-up capital still remains at Rs 5 crore. Do you think this is a constraint? The government is looking to raise the capital to Rs 100 crore? How will it help you?

That proposal is only to make a level playing ground. As per IRDA regulations, every company should have Rs 100 crore as capital.

LIC has a solvency margin of 153 per cent as against IRDA’s requirement of 150 per cent. Our asset base is around Rs 9 lakh crore.

Related Stories:
LIC’s single premium income surges
Life insurers’ fresh premium collections decline in May

More Stories on : Interview | Life Insurance

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