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ULIPs play spoilsport, pull down pvt life insurers’ investment income

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Written by George Mathew | Mumbai |
February 14, 2021 1:39:59 am
ULIPs combine the benefits of both life cover and savings in a single plan, but their value erodes when the markets fall. (Representational Image)

Private life insurance companies reported a huge fall in investment income and ended up with losses during 2019-20 as the value of their investment under unit-linked investment plans (ULIPs) plunged when the stock market crashed in March last year. However, government-owned Life Insurance Corporation (LIC), which is gearing up for an initial public offering (IPO), witnessed a rise in income, including capital gains, as the corporation stayed away from ULIPs.

In the case of private insurers, the loss in investment income was at Rs 3,106 crore in 2019-20, as against a profit of Rs 61,158 crore in 2018-19. The investment income (policyholders’ and shareholders’) of LIC including capital gains and other income increased to Rs 2.37 lakh crore in 2019-20 as against Rs 2.24 lakh crore in 2018-19), according to the Annual Report of insurance regulator, Insurance Regulatory and Development Authority of India (Irdai).

The negative income of private players included negative movement in the fair value of unit linked assets, Irdai said. “Private insurers were major players in ULIPs. When the stock market fell in March amid the Covid pandemic and lockdown, their investments also eroded. LIC has a huge stock portfolio … their legacy investments acquired at low costs aided the corporation,” said an insurance official.

ULIPs combine the benefits of both life cover and savings in a single plan, but their value erodes when the markets fall.

However, the story is different in the case of general insurers. “During the year under review, the investment income of public sector insurers decreased by 1.92 per cent. Investment income of private sector insurers, standalone health insurers and specialized insurers has grown at the rate of 25.85 per cent, 43.77 per cent and 7.23 per cent respectively,” the Irdai report said.

Investment income of private general insurers shot up from Rs 8,885 crore in 2018-19 to Rs 11,182 crore.

As on March 31, 2020, the investments made by the insurance industry stood at Rs 42.53 lakh crore, as against Rs 38.47 lakh crore in March 2019, registering an increase of 10.54 per cent. The share of life insurers stood at 91.47 per cent, general insurers including specialised insurers and standalone health insurers (SAHI) constituted 6.87 per cent and reinsurers including branches of foreign reinsurers constituted 1.66 per cent as of March 2020. The share of PSUs stood at 76.79 per cent and private sector constituted 23.21 per cent in the same period, Irdai said.

Funds of life insurers are split based on investments made out of traditional products and ULIP products. The funds of life insurers as of March 2020 was Rs 38.90 lakh crore, of which Rs 35.17 lakh crore (90.41 per cent to total funds) was from traditional products and balance of Rs 3.73 lakh crore (9.59 per cent to total funds) from ULIP products.

Meanwhile, the underwriting losses of the general insurance industry increased by 6.27 per cent in 2019-20 from Rs 22,320 crore in 2018-19 to Rs 23,720 crore in 2019-20, IRDAI said. The public sector insurers’ underwriting losses increased to Rs 18,741 crore from Rs 18,533 crore.

The private sector insurers reported increase in underwriting losses, which was Rs 3,647 crore in 2019-20 from Rs 2,890 crore in 2018-19. Standalone health insurers reported increase in underwriting losses in 2019-20 which was Rs 651 crore as compared to underwriting loss of Rs 568 crore in 2018-19. The underwriting losses of specialised insurers increased to Rs 680 crore in 2019-20 from Rs 328 crore in 2018-19, the regulator said.

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