 "We never keep aside funds for disinvestment: S K Roy")
S K Roy, chairman of Life Insurance Corporation of India, the country's largest in the segment, tells M Saraswathy & Manojit Saha about new products and the thinking behind its investment outlook. Edited excerpts:
The equity markets have seen a healthy run in recent months. Was this the factor giving you the confidence to increase your equity investment corpus?
While markets are seeing a good run, sometimes for long-term investors it is not a good way to enter. A less than 2,000-point increase does not impact anything. In the Ulip portfolio, even if the Sensex goes up by 200 points, it doesn't affect the net asset value of any company. So, a 200-300 points Sensex rise has no impact on retail investors.
You are talking about a 10 per cent growth in first year premiums. But several of your products are still to be approved.
Last year during this time, we had 40 products. We have around 12 now and are showing seven per cent growth in first year premium. The number of products is not a factor in determining new premium growth.
If we are able to show seven per cent growth with these 11-12 products, it means these products are being managed more efficiently than earlier. At LIC, we are not cost-oriented, though we are cost-conscious. Product approvals are a continuous process and at any given time, five to seven will be under consideration by Irda (the sector regulator).
The Ulip space has seen a visible absence of LIC. Have you taken a decision to launch products here?
We want to be present in that segment. We have learnt from experience that the success of a Ulip depends on the timing of the launch. We have not been able to make up our mind on whether this is the right time. Today, the Sensex is around 26,000. If we launch a Ulip today and if it is seen as an investment product by a customer, he expect's some return if Sensex rises substantially from this level. This is despite the fact that a lock-in of five years is prescribed. Hence, the timing of the launch is not fixed.
Disinvestments of some large public sector undertakings (PSUs) are on the anvil. Will LIC set aside any funds for it?
We never keep aside funds for disinvestment. We keep aside money for investment. It is disinvestment for somebody, it is investment for us.
In two central government disinvestments that happened last year, we got only about 80 per cent, though we bid for the whole amount. A myth has been created in the market that unless LIC participates, disinvestment will not succeed. Any analyst will tell you that central PSUs are highly under-valued entities. Any investment in them will be a good investment in the long run. In today's environment, everybody is talking about how these are highly under-valued entities.
LIC has large investments in public sector banks (PSBs). Is there a concern on concentration risk? Do you have sufficient headroom to invest, as these banks will come out with capital raising programmes this year?
We have sufficient headroom. If you want to see how good or bad our calls are, one recent example is State Bank of India. We participated in the QIP (qualified institutional placement) and look at the rate it is now trading at. The concentration risk is not an issue, since we are within the regulatory norms.
There is talk of several PSBs in talks with LIC for private placement. Do you have any concerns about these, since they are all stressed?
We have already taken a decision to subscribe in the earlier ones. We have no discomfort about PSBs.
LIC has entered the online term space, too. Will more products be launched on this platform?
The online platform itself has some limitations. You cannot sell too many products from that platform. Our first product was an immediate annuity and is easy to sell online. Term (insurance) is also relatively easy to sell, since disclosures are so high. But many other products are not easy to sell.
As an industry, we have not sorted the problem of intermediation. Even for online products, human interface is still there and there is a cost associated with it. In these two months, there have been more than 2,500 log-ins. Large numbers of these have converted into sales.
LIC has a large real estate bank as well. Any plans to increase your land bank?
We have not added any properties in the recent past. Real estate is a trouble-giving asset in India. It has to be managed very carefully. There are a large number of inherent inefficiencies. So, we would not want to increase our land bank unless it is for self-occupation. We already have a large land bank and it will take several years to develop that. It will keep us busy for at least 10 years.
Financial inclusion is a big priority under the new government. Will LIC play a major role in it, through micro insurance?
Financial inclusion is a priority area for govt and micro insurance is one method. Our target for micro insurance is to cover 2.4 million lives in this financial year, and for social security schemes, it is a target of nine million lives, which will take our coverage to 62.5 million. We have a multi-pronged strategy for financial inclusion. Micro insurance is a part of the package and LIC will play its role in it.
Bhushan Steel is in the news because of an alleged bribery. Since LIC is a lender, as well as an investor in the company, what concerns do you have?
As an investor and lender we have no issue there. There is no discomfort with the company. However, the lead lender has called a meeting and we will join the meeting.
LIC is a large shareholder in many companies like Maruti or Cairn India. Often, it is criticised on the ground that it acts like a passive shareholder. How do you react to this?
This is a perception and not a criticism. What LIC does in these situations is that we engage with companies and they respond to our concerns. It is our normal practice that if something happens in a company which is not in its larger interest, we engage with them and the company responds to us. The important thing is that LIC should perceive that there is a problem.
The equity markets have seen a healthy run in recent months. Was this the factor giving you the confidence to increase your equity investment corpus?
While markets are seeing a good run, sometimes for long-term investors it is not a good way to enter. A less than 2,000-point increase does not impact anything. In the Ulip portfolio, even if the Sensex goes up by 200 points, it doesn't affect the net asset value of any company. So, a 200-300 points Sensex rise has no impact on retail investors.
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A rise in our equity investment is bound to happen, since it is dependent on our investible surplus. We hope to increase the new business premium by 10 per cent. If first premium goes up by 10 per cent, the investible surplus should go up by a similar margin.
You are talking about a 10 per cent growth in first year premiums. But several of your products are still to be approved.
Last year during this time, we had 40 products. We have around 12 now and are showing seven per cent growth in first year premium. The number of products is not a factor in determining new premium growth.
If we are able to show seven per cent growth with these 11-12 products, it means these products are being managed more efficiently than earlier. At LIC, we are not cost-oriented, though we are cost-conscious. Product approvals are a continuous process and at any given time, five to seven will be under consideration by Irda (the sector regulator).
The Ulip space has seen a visible absence of LIC. Have you taken a decision to launch products here?
We want to be present in that segment. We have learnt from experience that the success of a Ulip depends on the timing of the launch. We have not been able to make up our mind on whether this is the right time. Today, the Sensex is around 26,000. If we launch a Ulip today and if it is seen as an investment product by a customer, he expect's some return if Sensex rises substantially from this level. This is despite the fact that a lock-in of five years is prescribed. Hence, the timing of the launch is not fixed.
Disinvestments of some large public sector undertakings (PSUs) are on the anvil. Will LIC set aside any funds for it?
We never keep aside funds for disinvestment. We keep aside money for investment. It is disinvestment for somebody, it is investment for us.
In two central government disinvestments that happened last year, we got only about 80 per cent, though we bid for the whole amount. A myth has been created in the market that unless LIC participates, disinvestment will not succeed. Any analyst will tell you that central PSUs are highly under-valued entities. Any investment in them will be a good investment in the long run. In today's environment, everybody is talking about how these are highly under-valued entities.
LIC has large investments in public sector banks (PSBs). Is there a concern on concentration risk? Do you have sufficient headroom to invest, as these banks will come out with capital raising programmes this year?
We have sufficient headroom. If you want to see how good or bad our calls are, one recent example is State Bank of India. We participated in the QIP (qualified institutional placement) and look at the rate it is now trading at. The concentration risk is not an issue, since we are within the regulatory norms.
There is talk of several PSBs in talks with LIC for private placement. Do you have any concerns about these, since they are all stressed?
We have already taken a decision to subscribe in the earlier ones. We have no discomfort about PSBs.
LIC has entered the online term space, too. Will more products be launched on this platform?
The online platform itself has some limitations. You cannot sell too many products from that platform. Our first product was an immediate annuity and is easy to sell online. Term (insurance) is also relatively easy to sell, since disclosures are so high. But many other products are not easy to sell.
As an industry, we have not sorted the problem of intermediation. Even for online products, human interface is still there and there is a cost associated with it. In these two months, there have been more than 2,500 log-ins. Large numbers of these have converted into sales.
LIC has a large real estate bank as well. Any plans to increase your land bank?
We have not added any properties in the recent past. Real estate is a trouble-giving asset in India. It has to be managed very carefully. There are a large number of inherent inefficiencies. So, we would not want to increase our land bank unless it is for self-occupation. We already have a large land bank and it will take several years to develop that. It will keep us busy for at least 10 years.
Financial inclusion is a big priority under the new government. Will LIC play a major role in it, through micro insurance?
Financial inclusion is a priority area for govt and micro insurance is one method. Our target for micro insurance is to cover 2.4 million lives in this financial year, and for social security schemes, it is a target of nine million lives, which will take our coverage to 62.5 million. We have a multi-pronged strategy for financial inclusion. Micro insurance is a part of the package and LIC will play its role in it.
Bhushan Steel is in the news because of an alleged bribery. Since LIC is a lender, as well as an investor in the company, what concerns do you have?
As an investor and lender we have no issue there. There is no discomfort with the company. However, the lead lender has called a meeting and we will join the meeting.
LIC is a large shareholder in many companies like Maruti or Cairn India. Often, it is criticised on the ground that it acts like a passive shareholder. How do you react to this?
This is a perception and not a criticism. What LIC does in these situations is that we engage with companies and they respond to our concerns. It is our normal practice that if something happens in a company which is not in its larger interest, we engage with them and the company responds to us. The important thing is that LIC should perceive that there is a problem.