Life insurers holding 20% of funds in cash

Life insurers holding 20% of funds in cash

New Delhi: With sharp falls in the stock markets, Indian life insurance companies have become cautious, holding nearly 20% of around Rs8.67 trillion of funds under management in cash, managers said.

“Before January we didn’t hold much in cash, but now since markets are highly unpredictable, we have become conservative," said Jyoti Vaswani, fund manager of private insurer Aviva Life Insurance Co. India Ltd, a venture between consumer goods firm Dabur India Ltd and London-based insurer Aviva Plc. “We are holding around 20% in cash, much higher than before."

Since January, the benchmark Sensex index of the Bombay Stock Exchange has tanked 11,599.64 points. It closed at 8,701.07 points, down 10.9%, on Friday.

“These are tough times," said a senior official at Max New York Life Insurance Co. Ltd, a venture of US-based New York Life Insurance Co. and Max India Ltd. “We are cautious to invest in the markets as it is very difficult to predict which way the market is moving," he said.

“We are keeping around 20% in cash," he said, asking not to be named as he is not authorized to speak to the media.

Life insurance funds consist of assets under unit-linked insurance plans, or Ulips, and endowment plans.

While most Ulip assets are invested in equities according to investor risk appetite, the insurance regulator’s norms in the country allow only about 20% of endowment fund assets to be invested in stocks.

“We have slightly increased our cash levels to 12-15% from the earlier levels of 10%. But the investment pattern of the Ulips is largely a mandate of the policyholders," said Sashi Krishnan, chief investment officer, Bajaj Allianz Life Insurance Co. Ltd, a venture of Germany’s Allianz SE and Bajaj Auto Ltd.

Some life insurers, however, consider the current decline as a buying opportunity.

“In the past couple of weeks we have invested around Rs2,000-2,500 crore in the market to pick up value stocks," said a senior official of Life Insurance Corp. of India, or LIC. “We plan to invest around Rs40,000 crore by the end of this fiscal (March 2009)," he said on condition of anonymity because he is not authorized to discuss internal matters.

Among insurance firms, LIC invests the most in equities, given that it accounts for more than three-quarters of total assets under management by insurers. LIC has so far invested nearly $50 billion (Rs2.5 trillion) in the markets.

The state-run LIC, however, said on 17 October that it sold a 6.91% stake (Rs2.57 crore) in drug maker Ranbaxy Laboratories Ltd at Rs737 a share.

This could also mean money invested in the past couple of weeks can be reallocated with no fresh money entering into the stock market.

“We are investing to pick up value stocks with strong basics. From April to now we have invested higher than our last year’s investment during this period," said U.S. Roy, managing director of SBI life Insurance Co. Ltd, a venture of State Bank of India and France’s BNP Paribas Assurance SA. Last year, the company invested around Rs1,000 crore between April and September.