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Thursday, Nov 21, 2002

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SBI Life parking monies in index, mutual funds

C. Shivkumar


SBI Life has begun investing in index funds and some mutual funds in a bid to keep the average return on investments high and simultaneously restrict investment risks.

Speaking to Business Line, Mr R. Krishnamurthy, Managing Director and Chief Executive Officer of SBI Life, confirmed the trend. "We have made some investments in these securities within the regulatory guidelines." The guidelines of the Insurance Regulatory and Development Authority allow life insurers to invest up to 15 per cent of their investible corpus in unapproved securities. These securities include mutual funds, index funds included. The remaining portion of its corpus has been parked in Government securities.

Mr Krishnamurthy, however, declined to part with quantum of funds parked in these categories of securities or the name of the AMC where the funds are parked. Currently only about five-asset management companies have index funds as part of their investment schemes. This includes SBI Mutual Fund.

Current indications are that SBI is the first life insurer to invest in index funds. All the other private sector life insurers have also preferred to directly invest in the equity markets.

SBI has so far stayed away from directly participating in the equity markets as an institutional investor, he said. This he said was due to the current situations of a high downside risk in the equity markets, Mr Krishnamurthy added. SBI Life currently have preferred to focus on building up a critical mass of premium income before moving directly into the equity markets and increase their investment incomes. He said that its investments have made money for the insurer despite the smaller volumes.

SBI Life is a joint venture with Cardiff Insurance of France, who has a 26 per cent stake. The State Bank of India holds the remaining 74 per cent stake. In its first year of operations, SBI Life has managed to generate over Rs 50 crore by way of premium income alone and is headed towards doubling this number before this year- end. The volume driver for achieving this figure is expected to the term plan products such as Suraksha and the Super Suraksha. Term plan products provide only insurance cover and there are no savings components attached. The initial round of its offensive for collection has been entirely through the parent's network by offering coverage to depositors and borrowers. But SBI Life is also beginning to push its endowment products such as Sudharshan and SBI Scholar. Endowment products provide both for risk coverage as well as savings for policyholders.

But none of the new crop of life insurers are investing in high yielding State Government-guaranteed securities. Life insurers are obliged park at least 25 per cent in State Government securities and 15 per cent as part of their infrastructure/social sector obligations. But life insurers, sources said, treat State Government-guaranteed securities as illiquid and have preferred to abstain from these instruments currently. This decision has also been influenced by the past history of other financial institutions that had invested in such instruments, the sources added. Instead what is being done is that a substantial quantum is being invested in sovereign guaranteed papers and central public sector papers, where the safety levels were considered high.

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