New Ulip norms hit life insurers’ plans for Street

By Sneha Shah Aug 19 2010 , Mumbai

The spate of regulatory changes over unit-linked life insurance products (Ulips) has dampened equity investment plans by life insurance companies this financial year. The life insurance industry that invested more than Rs 100,000 crore in equity markets last year is unsure of how much money will flow into Ulips this year.

Life insurance companies such as Life Insurance Corporation (LIC), ICICI Prudential Life, Bajaj Allianz Life, SBI Life and HDFC Standard Life are leading investors in the equity markets based on their unit-linked insurance portfolio. While LIC invested around Rs 61,400 crore in equity markets last year, 22 private life insurance companies together invested around Rs 45,000 crore.

The companies are unable to plan their investments this year owing to the regulatory changes the product will undergo post September 1.

According to Thomas Matthew, managing director of LIC, the public sector life insurance company cannot plan its equity investments for this year as the sale of Ulips will get impacted post September 1. “Our equity investments depend on the flow of premium through Ulips. The product has gone through many changes in past one year and the premium income might get affected,” Matthew said.

According to Matthew, things will be clearer only by September. “Because of this, we are not able to plan our investments in advance this time. Last year, we did very well and saw a 52 per cent rise in equity investments over the previous year, as there was a huge premium flow into Ulips,” Matthew added.

For private life insurance companies that saw turbulent times in 2009-10, the equity investments dropped around 10 per cent year-on-year. The uncertainty in the equity markets affected investor’s decision to invest in Ulips.

Prasun Gajri, chief investment officer of HDFC Standard Life Insurance Company, said, “The first four months of the present financial year (April-July 2010) were good and we saw around 60 per cent rise in equity investments over last year. But from September 1, there is uncertainty on how sale of Ulips will be affected and how much will be the total equity investment for the year.”

LIC gained some of its lost market share last year on account of being a government sponsored life insurance company. When people were wary of going to private life insurance companies in 2009-10, LIC became their safe choice of investments. The company plans around Rs 200,000 crore of total investments in 2010-11. “The equity investments this year will be around same level as last year’s,” Matthew said. The insurance behemoth invested Rs 49,000 crore in secondary market and Rs 12,400 crore in the primary market (IPOs and FPOs) of the total equity investments last year.

Chief investment officer of another life insurance company said the premium flow will definitely get affected by around 10 per cent. “The distribution push that the product got so far because of higher commissions will get affected resulting into around 10 per cent drop in sales,” the official said on condition of anonymity.