The Life Insurance Corporation of India may have to pay Rs 90,000 crore in defined maturity benefits and survival benefits, up 20% from an approximate Rs 75,000 crore in FY13 “This year earning sufficient returns from investment in equities and bonds has become uncertain because of the gyrations of the market but we have an obligation to pay out the highest-ever benefits to policyholders this fiscal,” said a top LIC official.
Optimistic of matching the good returns on equity investments last year LIC chairman SK Roy said,” It is a big challenge but we are confident.” The state-run insurer’s payout showcases its dominance over the industry a decade after private companies were permitted to set up insurance companies, resulting in the entry of ICICI, Aviva and HDFC into the sector. Despite this, LIC’s settlements will nearly equal the total premium income of the entire private sector for last fiscal.
LIC holds on to its investments for years, a practice that has yielded high returns over the past two decades as the global liquidity tide drove two stock market rallies that helped lift Indian stocks. “From the investment point of view, the perspective will be 15-year plus,” says Roy. “What happens in two or six months is a not a significant impacting event. We are very bullish on the economy, and we are certain this will turn out to be a very good India story. If the markets are rising, we will like to book profits wherever possible.”
Although investing in state-run companies have yielded high returns in the past, it may not be the case in future given intensifying competition and governmental interference. For example, in MTNL – the loss-making telecom company that was once a blue chip – Life Insurance Corporation (LIC) owns 19%. But Roy says LIC will continue playing a long-term game.
In 2012-13, LIC had paid maturity benefits of around Rs 75,000 crore. In 2011-12, LIC had paid maturity claims of Rs 63,348 crore while the figure was Rs 49,548 crore in 2010-11. In both these years, its investment income was superior.
