The insurance regulator is clear that the state-owned Life Insurance Corporation of India (LIC) will be governed at par with any other insurance player when it comes to the investment cap on equities. “The government has said that it had raised the investment cap for LIC, but we have not seen any regulation on that front. As far as we are concerned, LIC would be governed at par with other insurers,” J Hari Narayan, chairman, Insurance Regulatory and Development Authority (Irda) told FE on Monday. The finance ministry had raised the investment cap for India’s largest life insurer to 30% after pointing out that the LIC Act, 1959, supersedes the Insurance Act.
As per the LIC Act, the state-run life insurer could invest up to 30% of its total funds in a single entity. In a notification on its website on Friday, Irda confirmed that insurance companies can raise their equity investment cap for insurers to 12-15% from the earlier 10% cap, depending on their controlled fund.
Hari Narayan said only insurers with a controlled fund above R50,000 crore could go beyond the 10% investment cap. “There are about four or five insurance players including LIC and ICICI Prudential who have controlled funds above R50,000 crore,” he said. Players who have a controlled fund between R50,000 crore and R2,50,000 crore, will be allowed to raise their equity stake in a company to 12%. Insurers with controlled fund above R2,50,000 crore will be allowed to take up to 15% equity stake in any single company, Hari Narayan confirmed.
Controlled fund is the total corpus of traditional policies and policyholder funds held by an insurer. “There are a few companies where we have an exposure above 15% but so far, we have not received any official communication from the regulator to bring it down,” said Sushobhan Sarkar, managing director, LIC.
However, the move to raise the investment ceiling, is not expected to benefit majority of insurers in the market. Sarkar said LIC’s controlled fund stands above R13 lakh crore. In comparison, HDFC Standard Life has controlled fund worth R9,000 crore as on January 31, said Amitabh Chaudhry, managing director and chief executive officer.
The corpus of life insurance firms is estimated at R16 lakh crore. In 2011-12, the total collection of premiums by life insurance companies was R2,87,072 crore as against R2,91,639 crore in the previous year, a drop of 1.5%. Premiums have been sluggish ever since August 2010, when the regulator slashed the commissions that agents could charge on unit-linked insurance plans (Ulips). While earlier the bulk of the premiums — more than 70% — came into ULIPs, that share is now down to 15%. The premiums that were invested in Ulips fell 36% 2011-12 over the previous year.