 "Private life insurers begin bond buying as premiums pick up")
Private life insurance companies have resumed buying bonds, both government and corporate, on the back of attractive levels and a good increase in new premiums. These life insurers have seen a 10 per cent growth in new business premiums in the current financial year (up to November) allowing them to have a higher investable surplus, compared with the same period in FY14 when the sector witnessed a fall owing to the macro-economic conditions.
According to Nirakar Pradhan, chief investment officer of Future Generali India Life Insurance, the December-March period is the busy season when fund inflows pick up.
The yield on the 10-year bond yield had dropped to a near 17-month low of 7.83 per cent earlier this month and from there, the yield has climbed to 7.96 per cent as on Wednesday. Yields started falling owing to hopes of a rate cut in the fourth quarter of the current financial. However, the recent correction in yields is attributed to profit booking by traders and weakness in the rupee.
According to Pradhan, the growth in premiums has been better than last year. “The growth in premiums has been due to change in the investment climate after the new government took over.”
Private life insurers have gained a big jump in premiums, on the back of the market rally. A senior life insurance investment official said there has been a renewed interest in Unit-Linked Insurance Products (Ulips) owing to the rise in the Sensex. “Ulips usually have a higher ticket size than traditional products and that has automatically contributed to the premium growth,” he said.
Attractive levels in the corporate bond segment are another reason. Badrish Kulhalli, head of fixed income at HDFC Life, said that in corporate bonds the levels are very attractive to make investments because the spreads over government bonds has increased. “For insurance companies, the interest is more in corporate bonds thanks to attractive spreads. By end-March, yields are likely to be lower by 20-25 basis points from current levels. By March, we will be close to a rate cut or we would have had a rate cut, so bond yields will be lower,” he said.
During April-June 2014, insurance companies were not able to tap the recent rally in the bond market due to an earlier decision of duration-cut in their debt papers. This was because they did not expect RBI to take a dovish stance in the monetary policy review held then.
S Prabhu, vice-president and head (fixed income) at IDBI Federal Life Insurance said the spreads in corporate bonds widened recently and issuance of paper has also increased. “We anticipate substantial flows into the insurance sector over the next quarter and consequently buying interest in bonds is expected to be strong,” he said.
In the fifth bi-monthly monetary policy review earlier this month, RBI governor Raghuram Rajan said a change in the monetary policy stance was likely early next year, should improvements in inflation and fiscal health continue.
According to Nirakar Pradhan, chief investment officer of Future Generali India Life Insurance, the December-March period is the busy season when fund inflows pick up.
The yield on the 10-year bond yield had dropped to a near 17-month low of 7.83 per cent earlier this month and from there, the yield has climbed to 7.96 per cent as on Wednesday. Yields started falling owing to hopes of a rate cut in the fourth quarter of the current financial. However, the recent correction in yields is attributed to profit booking by traders and weakness in the rupee.
According to Pradhan, the growth in premiums has been better than last year. “The growth in premiums has been due to change in the investment climate after the new government took over.”
Private life insurers have gained a big jump in premiums, on the back of the market rally. A senior life insurance investment official said there has been a renewed interest in Unit-Linked Insurance Products (Ulips) owing to the rise in the Sensex. “Ulips usually have a higher ticket size than traditional products and that has automatically contributed to the premium growth,” he said.
Attractive levels in the corporate bond segment are another reason. Badrish Kulhalli, head of fixed income at HDFC Life, said that in corporate bonds the levels are very attractive to make investments because the spreads over government bonds has increased. “For insurance companies, the interest is more in corporate bonds thanks to attractive spreads. By end-March, yields are likely to be lower by 20-25 basis points from current levels. By March, we will be close to a rate cut or we would have had a rate cut, so bond yields will be lower,” he said.
During April-June 2014, insurance companies were not able to tap the recent rally in the bond market due to an earlier decision of duration-cut in their debt papers. This was because they did not expect RBI to take a dovish stance in the monetary policy review held then.
S Prabhu, vice-president and head (fixed income) at IDBI Federal Life Insurance said the spreads in corporate bonds widened recently and issuance of paper has also increased. “We anticipate substantial flows into the insurance sector over the next quarter and consequently buying interest in bonds is expected to be strong,” he said.
In the fifth bi-monthly monetary policy review earlier this month, RBI governor Raghuram Rajan said a change in the monetary policy stance was likely early next year, should improvements in inflation and fiscal health continue.