New Delhi: Investors are pumping more money into unit-linked insurance plans, or Ulips, judging from the sales growth posted by market-linked policies of Life Insurance Corp. of India, or LIC, the country’s largest insurer by premiums collected.
The share of new premiums earned by LIC’s Ulips in May rose to 65% of overall premiums earned by the state-run insurer, from 56% in March.
The increase reflects a sharp rebound in share prices since March that has revived investor appetite for risk.
The Bombay Stock Exchange’s benchmark index, the Sensex, has gained 82% since 9 March, after posting its worst decline on record in 2008 of 52%. It ended at 14,875 on Monday, down 362 points, or 2.38%.
Ulips offer both life insurance as well as an investment avenue, with part of the premium going towards the sum assured of a policyholder and the balance parked in instruments such as stocks and bonds.
The policy value varies according to the price of the underlying assets.
Ulip sales are increasing because investors want to participate in a rising market, said a senior official at LIC, who didn’t want to be identified because he is not authorized to speak to the media.
“In 2007-08, share of Ulip was as high as 84% in the total premium collection... After losing the growth it’s again picking up,” the same official added.
The rising Sensex has been propelled mainly by small- and mid-cap stocks.
On 9 March, the price-earnings (P-E) multiple for Sensex constituents was 11.6. In comparison, the same valuation measure for the Mid-Cap Index was 8.69 and the Small-Cap Index 5.94.
Currently, P-E multiples of mid-cap and small-cap indices are 16.05 and 13.03, respectively.
The P-E multiple is calculated by dividing the price of a stock by its earnings per share. The higher the multiple, the costlier is the stock.
The life insurance industry registered a 10% fall in new premium income in the last fiscal year compared with 2007-08, led by slumping demand for Ulips.
LIC’s new premium income fell 23% from the previous year to Rs18,070 crore.
Life insurers collected a combined Rs44,688 crore in new premium income in the year gone by. It was the first time since insurance was opened up to competition in 2001 that the industry closed a year with a decline in new premiums.
The premium income of LIC, however, rose 4% in April from a year ago.
“Ulips’ sale is slowly picking up for all players and since LIC is the biggest player in the market it means that a large number of investors are ready to take risks now,” said S.B. Mathur, the secretary general of Life Insurance Council, an umbrella body of the industry.
Last year, when policy sales fell, LIC chairman T.S. Vijayan said the company would focus more on traditional products. But with the markets rising, the insurer has renewed its focus on Ulips.
“Currently, consumers are asking for market-related products and we are offering those to them,” said the LIC official.