The Hindu Business Line : New premium likely to see less equity exposure

Kolkata, Nov. 4 From next fiscal, some life insurance companies are likely to cut down their stock market investments by 10 to 15 per cent in respect of new businesses.

They are planning to launch wholly debt-oriented schemes (such as universal life policies) and innovative traditional products to reduce the bias towards unit-linked policies (ULIPs), which now account for 80-90 per cent of the total business.

Exposure to grow

The overall equity market exposure of the life insurance industry will, however, continue to grow as the large corpus of renewal premiums from unit-linked policies written in the previous years will continue to be parked in equity depending on policyholders’ choice, according to industry experts.

The break-up between renewal and first year premium business is nearly 50:50 in most private life insurance companies.

“On an average, 55-60 per cent of the ULIP funds and 40-45 per cent of the overall corpus is invested in the equity market. The investments in equity may go down to some extent only in case of new business if there is a shift away from ULIPs,” Mr Prashant Sharma, Vice-President, Investments, Max New York Life Insurance Company (MNYL), told Business Line.

Only 5 to 7 per cent of the corpus in traditional policies is invested in the equity market.

The company expected the contribution of unit-linked policies to total business to come down from 76 per cent to 65 per cent in a couple of years, said Mr Debashis Sarkar, Senior Director and Chief Marketing Officer, MNYL.

“The equity investments from new business may come down by 10 to 15 per cent with the sale of more traditional policies. The renewal premiums from the new debt-focused policies may in turn have an impact on investment distribution five years later,” said Mr Puneet Bhargava, Vice-President, Group Sales, Kotak Life Insurance Company.

The renewed focus of insurance companies in traditional products stemmed from the fact that the default rate in them was much lower compared to ULIPs.

Some policyholders also preferred traditional products now as the fall in Net Asset Values of ULIPs in the recent downturn had made them wary of stock market fluctuations, he added.

Traditional policies

Mr Manish Kumar, Head, Investments, ICICI Prudential Life, said, “The investment allocations in ULIPS depend on the policyholders’ choice of funds. In case there is an incremental sale of traditional policies, there will be higher allocation in debt instruments.”

With the innovations in traditional policies, companies would like to invest in new debt instruments such as long-term derivatives and floating rate bonds, if IRDA allowed the same, Mr Sharma said.

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