India’s Life Insurance Corp. to Boost Investments in Stocks, Bonds by 8%

Life Insurance Corp. of India, the country’s largest money manager, plans to increase investments in stocks and bonds by about 8 percent this fiscal year as its premium collections climb.

The Mumbai-based insurer may boost investments in stocks and bonds to 2 trillion rupees ($45 billion) in the year ending March 31, 2012, said D.K. Mehrotra, chairman at the government- owned insurer with $257 billion of assets.

“The India story is very attractive in the long term with the early onset of monsoon,” Mehrotra said in an interview with Bloomberg UTV on June 3. “The growth in industrial production and agricultural sector and company earnings will see the market giving us a lot of opportunities.”

India’s gross domestic product rose 7.8 percent in the three months ended March 31 from a year earlier, making it the fastest-growing country among major economies after China as incomes in the nation of 1.2 billion people increase. Monsoon, which accounts for more than 70 percent of India’s annual rainfall, is progressing ahead of schedule this year, India Meteorological Department said last week.

Life Insurance invested 1.85 trillion rupees in the nation’s capital markets in the year ended March 31, of which 430 billion rupees was in Indian equities, Mehrotra said. This year, it expects to plow about 450 billion rupees in Indian stocks, he said.

Life Insurance, which manages more money than all Indian mutual funds combined, has also seen a slowdown in the sale of insurance plans linked to investments of stocks and bonds after the nation’s regulatory changes for such products. Known as unit-linked plans, these products now make up 60 percent of Life Insurance’s offerings, from as much as 80 percent three years ago, Mehrotra said.

Rule Changes

“The entire industry started selling insurance as an investment product and lost its focus,” Mehrotra said. “We have made a conscious shift toward selling traditional policies and hope to maintain the ratio at 60:40 or 55:45 of unit-linked plans to traditional policies.”

India changed its rules on unit-linked plans sold by insurers, capping charges and increasing the investment period. The Insurance Regulatory and Development Authority limited some charges and raised the minimum investment period for unit-linked insurance plans to five years from three. The regulator also set a minimum 4.5 percent annual guaranteed return for unit-linked pension plans. The new rules take effect Sept. 1.

“We are going to see many challenges during the year, so I would be happy with a growth of 25 percent” of its overall business this year, from 22 percent last year, Mehrotra said.

To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net;

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net;