LIC may invest less in stocks as premium growth stalls

Life Insurance Corp. of India (LIC), the country’s largest buyer of stocks, may cut its equity investment target to about ₹30,000 crore for the current year, the lowest in a decade, as new premium growth declined amid coronavirus-related disruptions, two people directly aware of the insurer’s internal discussions said.

LIC invested around ₹47,000 crore in stocks in the year to March, a 21% decline from the previous fiscal year, according to official data.

The state-owned insurer has been traditionally called upon by the government to use its deep pockets to rescue privatization plans and even support the stock markets during major sell-offs. A sharp drop in new premium collections because of lockdown-related disruptions has, however, left India’s largest insurer with less investible surplus.

To be sure, growth in new premium collections will likely increase as India reopens its economy after the two-month stringent lockdown. But it is uncertain whether premium collections will reach pre-covid levels as millions of people have been left jobless.

“For April and May, the first year premium collections have been 25-30% lower than the previous year. For LIC, almost the entire sale of policies comes from individual agents on the ground. Due to social-distancing norms and the lockdown, these agents are not able to reach the public for selling policies. Unless policies are sold, the investible surplus will not come, which in turn is impacting investments by LIC,” one of the two people cited earlier said, requesting anonymity.

LIC is one of the world’s largest insurers and has major investments in more than 100 publicly traded companies. In 2018, LIC invested around ₹24,000 crore in IDBI Bank to rescue the distressed lender.

“The downtrend is likely to continue for 2-3 quarters because of uncertain economic environment,” the person said. “LIC is scheduled to have an investment strategy panel meeting by early July. The equity investment budget will be decided then. If the lockdown is lifted and commercial activities resume, LIC may be able to garner higher premium inflows, which may result in a higher investment in equities by LIC for FY21.”

Insurers are being squeezed as premium collections have taken a hit, data showed. in April, LIC collected new business premium of ₹3,581.65 crore, 32% less than the ₹5,267.94 crore collected in the year-ago period.

Premium collections for all life insurers fell in March. Private life insurers collected a total first-year premium of ₹8,342.73 crore in March, a 34% decline from a year ago, according to India’s insurance regulator. Typically, insurers depend on a network of agents, brokers and bank officials to sell products. However, sales targets have remained unmet due to mobility restrictions.