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MUMBAI : Indian stocks are at risk of losing vital support from insurers as premium collections of life insurance companies have steadily declined because of covid-related disruptions.

Life insurance premium collections from new businesses dropped to just 49,335.43 crore in the June quarter from 64,565.5 crore in the March quarter, and 69,000 crore in the December quarter, according to the Insurance Regulatory and Development Authority of India, or Irdai.

For private insurers, new business premium collections for the June quarter saw a massive 46% drop to 12,805.41 crore.

The fall in collections may prompt life insurers to deploy less capital into the equity markets this year, said market watchers.

This would greatly reduce the cushioning effect that domestic institutional investors (DIIs) have wielded so far in the event of heavy selling by foreign institutional investors (FIIs) among others.

Life insurers have historically been the biggest contributor among domestic institutional investments to the Indian stock markets.

For Life Insurance Corp. of India (LIC), which commands a 69% market share, new business premium for the quarter fell 12.23% to 36,530 crore from 41,000 crore in the preceding three months.

“In case foreign portfolio investors (FPIs) become heavy sellers in the equity market, I don’t think insurance companies have the ability anymore to offset the losses," said Harshad Patil, chief investment officer, Tata AIA Life Insurance Co. Ltd. “Around 70% of DII money is contributed by life insurers and the support comes from the premium for linked products. This has come down drastically, and the trend may continue. Insurers may not have enough cash now to be deployed in the equity markets."

“Almost 45-50% of the premium comes from market-linked products for private life insurers. The covid-19 pandemic has hit linked plans more than endowment and term plans because people are now keener to save in risk-averse products, not equity-linked ones," said Tarun Chugh, managing director and chief executive, Bajaj Allianz Life Insurance Co. Ltd.

As new business premium collections declined since March, investment by insurance firms in the equity market has dropped by 25-30%, he said.

State-run LIC, which is the largest domestic institutional investor, generates 25-30% of its new business premium from market-linked policies and, with premium incomes dipping, equity investment by LIC, too, will proportionately suffer, said one person aware of LIC’s status.

“We have bought equities of 5,000-6,000 crore in June quarter. Premium incomes have been decreasing because a majority of LIC’s business comes from agency channels, However, because of the pandemic, the agents are not able to meet prospective customers," he said.

The situation is somewhat similar for private players. “Two issues are adding to the uncertainty for the industry’s growth. First, people want to keep more cash in hand and not in investment products. Second, face-to-face meetings for agents are now difficult so the agency channel business across the industry has been impacted," said Chugh.

Market data showed that domestic institutional investors have withdrawn 655 crore from the market, while in July 2019 they had invested 20,395 crore.

In June, domestic institutional investor invested 2,461 crore in equity, a drop from 3,643.31 crore in June 2019.

While in April, domestic institutional investors sold stocks worth 825 crore, In March, they had invested 55,595 crore.

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