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Life Insurance Corporation, or LIC, has reported a record growth of over 100% in new business premium in the first quarter of the current financial year. The corporation has managed to grow even as its rivals are struggling to come to terms with the new regulatory regime that has considerably trimmed their margins. What has favoured LIC is its structure where the corporation's sole objective is policyholder returns. In an interview with ET, LIC chairman TS Vijayan speaks how it will be business as usual for the corporation despite the changes in regulations.
Will you have to bring in new products that are compliant with new regulations?
We usually bring three to four products every year. This year, the number of products will be slightly higher because regulations have changed completely. We will have to tweak our products but hopefully not much changes are required. As far as expense ratios and surrender charges are concerned we are already there. However, we will have to look at the impact of charges year-on-year because the ceiling on charges comes into effect from the fifth year.
Will you be impacted by the new regulatory regime that comes into effect from September or do you see that as an opportunity?
This year we have set for ourselves a total premium target of `2,01,000 crore and we have always exceeded our targets. Since we are the lowest cost operator in the market we have some advantages. The biggest change that LIC faced was when the industry was opened up in 2001 and there was no restriction on new entrants either in terms of products, branch expansion or agents recruitment. That was a bigger challenge than regulatory change. Anybody who is prepared to change himself can take the advantage of the opportunity. But one possible impact could be that ticket size of Ulips might be higher. If the ticket size does go up, the number of people who can afford will come down.
Do you see a shift toward traditional plans?
Till July 2010, Ulips accounted for 75% of our premium and the remaining 25% came from non-linked traditional policies. But if you look at the number of policies there has never been much change. Of the total policies sold, around 80% continue to be traditional plans and Ulips have a much smaller share in terms of number of policies. I have not seen any significant change in the number of policies sold. The premium mix depends on whether single premium is coming in large numbers. We would definitely give more emphasis on traditional plans because these are longer duration and serve purpose of insurance better. It is very difficult to say whether the present ratio of 75:25 (Ulips: traditional) will continue. Over a period of time, I have observed one thing; the policyholder's preference for Ulip or traditional plans depends on market conditions. When the stock market is doing well investors prefer unit linked products when interest rates are high policyholders prefer non-linked products. Two years ago when rates were high we brought in the single premium Jeevan Aashtha through which we raised `11,000 crore.
What kind of investments are you looking at?
We expect to invest `2 lakh crore across asset classes during the current fiscal. Our incremental investments at the end of the first quarter stood at `39,000 crore, of which around `10,000 crore has gone into equity. We have a daily flow of premium based on which we will invest. If the premium is more from Ulips, our investment in equities will be higher. If premium is more from traditional policies, the investment in bonds and government securities will be high.
You have been granted infrastructure finance company status. How do you plan to use this?
We can now float infrastructure bonds up to 25% of our incremental investments in infrastructure in the previous year. Last year we invested around `20,000 crore in infrastructure. So we can raise up to `5,000 crore by way of infrastructure bonds. Some clarifications are required regarding investment regulations.
Source : http://economictimes.indiatimes.comFollow us on our social media channels:
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