LIC Cut Exposure To Equity, Corporate Bonds In First Half Of 2019-20
The Life Insurance Corporation headquarters in South Mumbai, India. (Photographer: Vijay Sartape/BloombergQuint) 

LIC Cut Exposure To Equity, Corporate Bonds In First Half Of 2019-20

India’s largest insurer reduced its exposure to equities and corporate bonds even as it bought more government securities in the six months through September 2019.

While Life Insurance Corporation of India’s total investment rose 8.9 percent year-on-year in the first half of the ongoing financial year, the share of equity in its portfolio dipped 1.8 percent and corporate bonds and debentures fell 20.8 percent during the period, according to its latest quarterly filing. The insurer’s Investments in government securities and bonds, however, rose 13.4 percent to 19.72 lakh crore.

LIC’s investment book for policyholders rose 8.83 percent year-on-year to Rs 28.92 lakh crore as of September. The return on investment, however, fell marginally to 7.37 percent in the first six months of FY20 compared with 7.42 percent in the corresponding previous period.

Investments in subsidiaries rose due to LIC’s acquisition of IDBI Bank Ltd. The insurer had set aside Rs 743.04 crore as provision for reduction in value of investment for the first half of FY20 compared with Rs 321.57 crore during the year-ago period.

For the six-month period ended Sept. 30, LIC clocked a gross yield of 7.1 percent from investments in listed equity shares of private sector companies while it earned a negative yield of 2.4 percent on its investments in equities of public sector undertakings.

Exposure To Downgraded Securities

LIC’s investments in debt instruments worth Rs 23,147 crore faced downgrade in the quarter ended September. These instruments largely belonged to Reliance Capital Ltd., Indiabulls Housing Finance Ltd. and Yes Bank Ltd.

Loans

The life insurer’s provision for stressed loans fell substantially in the first half of FY20 to Rs 383.19 crore compared with Rs 2,104.86 crore in the year-ago period.

While LIC’s total loan book rose marginally by 2.95 percent year-on-year in the first half of FY20, loans against policies jumped 7.8 percent compared with year-ago period. Loans on mortgage of property, however, reduced by 7.23 percent.

LIC’s exposure to corporate loans fell from 14.1 percent of the total loan book at the end of September 2018 to 12.87 percent as of September at Rs 15,487 crore.

The state-owned life insurer’s gross non-performing assets rose to 6.1 percent at the end of September 2019 compared with 5.95 percent at the end of September 2018. On a net basis, its non-performing assets were down to 0.33 percent compared to 0.41 percent.

Performance

LIC’s premium income grew 21.06 percent in the first half of the ongoing fiscal to Rs 1.8 lakh crore, according to its filings.

That was aided by higher growth in first-year premium collections. The insurer collected first-year premiums worth Rs 31,714 crore in the first half of FY20—159 percent higher than the first six months of the previous fiscal. Renewal premiums rose 5.72 percent and single premiums jumped 13.69 percent during the period.

The rise in first-year premiums is because of a push towards the sale of traditional products as the deadline of eight products was extended till January 2020 by the insurance regulator, Neeraj Toshniwal, analyst at Emkay Research, wrote in a report.

Agreed Pritesh Bumb, equity research analyst at Prabhudas Lilladher. “Relaunch of many products in line with the regulatory guidelines aided LIC’s growth.”

Emkay Global Financial Services, in its October report, had said that LIC has become aggressive with the launch of new protection products like Jeevan Amar at competitive rates, limited pay endowment policy (Jeevan Labh) offered at attractive internal rate of return and the possible launch of new unit-linked insurance plan products.

Low Commissions

LIC witnessed growth in premium income even as its commission expense fell. The life insurer’s commission rate—percentage of gross commission paid on gross premium—dipped to 4.77 percent in the first half of FY20 compared with 5.52 percent in the year-ago period, according to its disclosures.

While premium income grew more than four times to 21 percent year-on-year in the first half of FY20, commission expense rose by 4.72 percent to Rs 8,613.6 crore during the period.

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