Hardening yields of government securities are proving to be an advantage for traditional insurance products but have led to crowding out corporate bonds with few issuances taking place, believes Anurag Jain, Chief Investment Officer, Canara HSBC Oriental Bank of Commerce Life Insurance.
“In traditional products, we are at a very sweet spot. Higher rates mean that all the new inflows we get are deployed at a higher rate. We can give better returns to policyholders,” said Jain.
Traditional insurance products include term and endowment policies. Over the past few months, the 10-year benchmark government bond yield has been hardening, and has touched 8 per cent, even as the rupee continues to weaken against the US dollar.
“A falling rate may worry us but rising rates don’t worry us,” Jain told.
However, in the case of unit-linked insurance products (ULIPS), hardening G-Sec yields impact investment values and returns. “That is factored in; people have already reduced duration so that the impact can be minimised. There is no impact as such,” said Jain.
“Most corporates are not issuing paper and there are very few issuances. Secondary market transactions on the corporate bond side have also dried up,” said Jain, adding that as of now only housing finance companies and non-banking financial companies issue bonds.
According to Jain, this is only a short-term phenomena and the market will start to recover in some time. “For meeting these we need longer-duration products, (and) similar cash flow profiles, but we don’t have that kind of investment opportunities in the market. We need to deepen the bond market; companies can also raise longer-term paper,” he said.
