The state-owned insurer may look at long-term securities for maintaining its assets and liabilities at optimum levels
Life Insurance Corporation of India (LIC) is likely to increase its investment in government securities in the six months to March 2019. The insurer will likely reduce its exposure to the equity market as well. Sources told Moneycontrol the life insurer could invest upto Rs 1.9 lakh crore into debt securities in H2FY19, compared to Rs 1.5 lakh crore in H1FY19.
On the other hand, the life insurer may limit its equity exposure for the present financial year to about Rs 48,000 crore, pulled back by the volatile stock markets. LIC had invested Rs 58,881.7 crore into equities in FY18.
Data compiled by Ritesh Presswala
LIC holds 10 percent, and more, stake in 20 companies. In 15 of these, the market cap has eroded by 5-54 percent over the one year period between October 5, 2017 and 2018.
While investing in the equity markets, LIC follows a ‘contrarian’ investment strategy, which is sell when sentiment is bullish and buy when the mood is bearish.
“The idea is to strengthen the long-term investments so that any possible defaults in existing portfolios do not impact the policyholder returns,” said an official.
Life insurance companies invest heavily into long-term securities since the nature of business is for a longer horizon. Insurance policies have a tenure of 10, 20 and 30 years and insurers invest in bonds to provide adequate returns to customers at the end of the policy term. More than 80 percent of LIC's premiums come from the traditional business which is not linked to the equity markets.
LIC did not respond to a mail sent by Moneycontrol.
LIC’s helping hand to ailing companies
LIC holds 25.34 percent stake in infrastructure lending company IL&FS that has been facing a debt crisis. IL&FS has a cumulative debt of Rs 91,000 crore which it plans to reduce by selling multiple assets on a short-term basis. Here, LIC may be called in to offer a helping hand by offering capital.
As part of another deal, LIC will hold 51 percent stake in state-run IDBI Bank. The bank which has a high level of bad loans has been looking to hive off its non-core assets, which will now be the responsibility of LIC.
LIC’s balance sheet
A large investor in both equity and debt instruments, LIC’s balance sheet size jumped by 10.4 percent to Rs 27.9 lakh crore as on March 31, 2018. The total investment assets stood at Rs 27.23 lakh crore, of which the life fund (traditional business) stood at Rs 20.79 lakh crore.
In FY18, the insurer invested almost Rs 2.2 lakh crore into government securities incrementally. It had invested an incremental Rs 58,881.7 crore into equities in FY18. According to the LIC Annual Report (2017-18), the life insurer invested Rs 4.6 lakh crore in equities in FY18 compared to Rs 3.9 lakh crore in the year ago period, a jump of 18 percent year-on-year (YoY).
One of the largest equity investors in the country, LIC invests between Rs 50,000 crore to Rs 55,000 crore in stocks every year. The insurer is said to have exceeded the internal investment target for equities in FY18. These investments were made out of the policyholder account.
