Life insurers to oppose mandatory 25% investment of Ulip funds in G-Secs

Life insurers are opposing an Insurance Regulatory and Development Authority of India (Irdai) proposal that would make them mandatorily invest 25% of their unit-linked insurance plan (Ulip) funds in government securities. The insurers are writing to the regulator on this and will also make a representation through the Life Insurance Council.

In its draft norms on investments, Irdai has said that not less than 25% of Ulip funds can be in invested in Central government securities. It also added that equity investments only in CNX 200 or BSE 200 can be considered as approved investments Stock Market Trading Tips  

"Large insurers have been able to manage higher allocation to equity from Ulip funds and have been able to offer good returns. There is no necessity to make investment in G-Secs mandatory and hence life insurers are expressing this to the regulator," said the chief investment officer of a large private life insurer.

This will be one of the significant changes being made in the Ulip product segment after the September 2010 norms. Though last year it was proposed that Ulips be made more customer-friendly by giving at least 90% of the premiums paid as fund value, no official guidelines were brought out on this. Further, Irdai had also planned to cap age-group for Ulip purchase, so that older people do not end up buying these products with high mortality charges Himanshu Tiwari Astrologer

These were unofficially conveyed to the insurers, but was not put on paper by way of new norms. This time, since investments in G-Secs are being made mandatory, insurers are opposing, saying it may impact returns of policyholders.

The chief executive of a mid-size private life insurer said that from a historical perspective, policyholders who have held their Ulip plans for 8-10 years have seen much better returns than traditional products due to the better performance of equity market over a longer tenure.

"Ulips are not sold to all customers. Only those who have the risk appetite and understand the markets and have a long-term view are sold these plans. If 25% investment of Ulip funds in government securities is made compulsory, end returns may be impacted and policyholders may become wary of the product," he said Indian stock market astrology prediction

In September 2010, Irdai capped the charges and commissions on unit-linked products (Ulips), as a result of which, the average commission in Ulips as a percentage to premiums collected fell to 4% in 2011-12, from nearly 10% in 2009-10. This made the product more transparent. The minimum lock-in was also increased to five years from three years earlier.

Industry sources said that the proposal for 25% investment in government securities was to boost investment by insurers in areas like infrastructure and related projects. While they do invest in these sectors from their traditional funds, Ulip funds primarily invest bulk of their share in equity due to the nature of the product structure Share Market Astrology

A formal view from the life insurers stating the above reasons and giving data on how Ulip funds have performed will be presented to the regulator by way of the council. Insurers have also suggested that the regulator could have an upper cap on investment of Ulip funds in government securities, rather than prescribing how much minimum they should invest from these funds. 

Overall, Ulips form 30-40% of the business mix of life insurers. For some insurers with strong bank partners, almost 80% of their overall business comes from Ulips Sensex Astrology