LIC plans makeover of its investment strategy
Insurer to avoid excessive investment risks, strengthen corp governance
Anirudh Laskar
MUMBAI: Life Insurance Corp. of India (LIC), which has often stepped in to bail out the government’s disinvestment programme and stressed lenders, plans to avoid excessive investment risks and strengthen corporate governance as the country’s largest insurer faces more scrutiny as a publicly traded company.
The state-run insurance behemoth, also India’s largest institutional investor, plans to alter its investment strategy and strengthen its ‘materiality’ policy regarding related-party transactions, two people close to LIC said, requesting anonymity. LIC has equity investments worth over ₹10 lakh crore, while its total assets under management are valued at about ₹41 lakh crore.
“LIC is examining if it can lower its investments in infrastructure-related companies, including cement manufacturing, power generation companies and discoms. A new board is in place, and any such strategy change will be subject to the committee and the board’s approval,” one of the two people said. An email sent to the LIC spokesperson did not elicit any response.
Insurance Regulatory Development Authority of India (Irdai) norms require life insurers to deploy at least 50% of their investible surplus in government securities, at least 15% in infrastructure-related assets and the remaining 35% in equities, nonconvertible debentures, mutual funds and certificates of deposit, among other assets.
LIC also plans to slash its holdings in its subsidiaries, such as LIC Housing Finance Ltd, LIC Mutual Fund Asset Management Co. Ltd and IDBI Bank, the people said.
“Irdai has advised LIC to reduce investment in certain subsidiaries and associates. LIC also wants to curb risks arising from over-exposure in certain assets and single entities,” the first person said.
LIC’S plan to bring down its exposure to infrastructure-related companies is meant to curb potential risks arising from non-performing assets.
In a March 31, 2021 letter, Irdai allowed LIC to hold 49% in LIC Housing, but the regulator advised the insurer to “explore the possibility of reducing its stake in LIC Housing Finance” to bring its exposure within limits prescribed by Irdai.
Irdai allows insurers to invest up to 20% in one company, while they can offer up to 5% of their annual funds’ accretion as loans to a single company.
LIC holds 45.24% of LIC Housing Finance Ltd. It owns 49% in LIC Mutual Fund directly and an additional 16% stake through LIC Housing Finance, which owns 35.3% of the asset management company.
In another significant change, in transactions with related parties (subsidiaries, associates and individuals related to them) and dealings with creditors and borrowers, LIC plans to lower the materiality threshold as a percentage of consolidated revenue and embedded value to ensure transparency in such deals, according to the people cited above.