Eyeing 20-25% premium growth in FY13: LIC Chairman

Financial year 2011-12 was very challenging for most of the sectors including insurance. DK Mehrotra, Chairman of country’s largest life insurer, Life Insurance Corporation of India or LIC, speaks to NDTV Profit’s Vijay Iyer about how the market volatility and regulatory issues affected the company in the last fiscal and what kind of steps the company had to take to help its products meet the consumer requirements..Mehrotra is, however, hoping to meet the set targets this fiscal. He said that the company is planning to clock 15-18 per cent growth on policy and 20-25 per cent on premium in FY13..Below is the complete interview. Watch the accompanying video here..For various reasons, this financial year has been challenging in more than one ways. Where does LIC stand in the thick of action in this financial year as of today?As you rightly said, the year has been challenging if we look back. And definitely, the performance of the various companies including LIC witnessed a slowdown. Because the market has been quite volatile, especially the capital market so that’s impacted the sale of the unit-linked insurance products (ULIPs) along with the regulatory provisions which were introduced. Secondly, the entire scenario, in an economy was like people were holding back and seeing what’s going to happen before they put their money into a product, especially a long term commitment. So the insurance industry has witnessed a slow down including LIC as well.Nevertheless, we have been trying to see that we meet the master challenges in the market, meet the requirements of the people through our products. But the challenges were many, not one. Because as I said the market was volatile, we had regulatory requirements especially the recruitment also suffered because of the online examinations. Especially in the deep rural areas, it affected the recruitment of agents. So all these factors combined together have definitely been the reason for the slowdown in the industry and I am sure LIC also has been impacted by these reasons..You had set a target of around Rs 2,00,000 crore, where does your premium stand for this fiscal? How has been your real time growth? Where does it come when it’s actually a number crunching game?See, actually Rs 2,00,000 crore was our investment figure which was the target for the year. Though our new business figure, new premium figure, has been impacted because of various reasons I narrated, our renewal has been good, persistency has been good, and our other investment income has been good. So we think that we should be able to reach our target of Rs 2,00,000 crore for the current fiscal as well. But we are waiting for the final figures. Once we close the books on 31st of March, we should be able to tell you. .But what could be the provisional figures like in terms of your first year premium?First year premium presently is not very encouraging. It will be somewhere in the vicinity of Rs 28,000 to 29,000 crores. But let us see because I think the bulk of the business comes in the last day and the last phase of the year. So hoping that we should be very close to where we have targeted. .Do you think the single premium which you just launched will in a way help tide the last week for you?See, we have been actually looking for good products for quite some time. But the products which we got from the regulator came after a long lapse of time in fact. We were looking forward to a single premium, though there was a market ready for that. But, we could launch the product only in the month of March. So, I don’t think we will get the desired results on the basis of which we had launched the product. However, we are hoping that it is going to make a good sum of the gaps which we have witnessed especially in the area of single premium. But as I said that the period is too short and we cannot predict that we will have a very successful product like Jeevan Vidhi this year. It’s going to flow to the next year as well, but again we will have that impact of the tax introduced recent budget..There is a fear after what was proposed in the budget, particularly what has been done for the insurance sector. Do we see the steam of the single premium products going?I think, the provision that we should not do more than 10 per cent of the premium of the tax rebate, that’s definitely going to impact. The minimum term of any plan becomes 10 years so then the product cannot be introduced. Secondly, I think it would have been more prudent for an investor that linking it with the premium or linking it with the quantum of the premium could have been linked with the term. Because if you are able to link it with the term, we are able to generate a long term fund flow for the insurer, which definitely goes along in helping the society and get various other investment opportunities..In that sense, wouldn’t it act as a blessing in disguise for pushing your single premium products in this fiscal? Would your numbers be surprising?We are banking on that. We have been telling that ‘yes if before the 31st of March you can take advantage of that’ and we are hoping that, we should get some good figures..Is it the internal target?Actually, last year we introduced a similar product Jeevan Aastha, which that gave us almost about Rs 12,000 crore. But I would not say that we will be able to get Rs 12,000 crore with this product as I said that the period was too short. But still we are hoping that we will get a good amount for this..Close to Rs 5000 crore?Yes, we are hoping..Where do you see your investment standing in your equity portfolio? How are things for you in this financial year from an overall balance sheet perspective?As I said, we had kept a target of Rs 2,00,000 crore for investments, very close to what we has set for last year. Last year, we had invested around Rs 43,000 crore in equity and we are hoping that we should be able to reach that figure. And regarding our investment debt in another instrument, we have been doing well. So as I said we should be able to reach our target of investment of Rs 2,00,000 crore in the market. And I am very hopeful that we will be very close to the target when we close our book..Before going to various other aspects, one issue which is being debated for a while now is the ONGC issue, where LIC subscribed heavily. Would you want to set the record straight on what happened and what is the strategic investment with LIC at the end of the day, boarding close to Rs 2,00,000 crore but subscribing 95 per cent of the offer? What was the game plan there?See, I don’t know why ONGC has been singled out for so much of discussion. You know that, we have been investing since 1956 and we know all our investments are backed by proper research, proper data, proper diligence of the company, on the values that the companies are holding. So this also was totally a commissioned decision. And secondly, since it was through a process of auction. We thought that this an opportunity to pick up good number of shares at one goes. And before that we had diligence, before we went in to the market, we knew that there is a lot of value in that, in the future. And as I said earlier also, we are not a day trader, when we put coin to the market or put our money into the chips or especially blue chips, we look into a long term basis. I am quite sure that this is going to give me a good return in long term basis. And if today, something is saying that in just a matter of two-three trading session we have made a loss, it’s notional loss because ultimately the end results are not going to be bad for my customers. .So, Mr. Mehrotra, you had decided in the beginning that you will go for the kill? You will subscribe to the extent you subscribe in the issue?Ya, we had. We had thought of it. I told you we thought this was a very good opportunity. And we had been picking up ONGC shares earlier also. And as I said it’s not just ONGC only, but any share that is going to give us value, there is a good sort of corporate governance, good growth prospects we will definitely take up those shares, we have been doing it. .There is another aspect this fiscal which everyone has been looking closely on the investment perspective was, once again you are betting big on PSU banks. A lot of preferential shares had been issued to you by various banks, once again a heavy investment is happening on that particular aspect, so once again is this the long term bet that you are pumping in the money because also is the argument that Finance Ministry has limited the resources for the re capitalization, so in a way it’s also serving that purpose. What’s the, once again, game plan when it comes to PSU banks?As I said we have our own research that keeps scanning the various sectors and for quite some time we have been seeing that the bank’s shares have been undervalued. So we thought this was the right time to pick them up. And definitely as I said, we are a long term investor, and we do see a lot of growth prospects in all these shares in the future. And in the process, the bank has been helped. I am sort of happy about helping them. No other thought went into our mind. .It serves your objective also?Yes, exactly. We found that especially in this volatile market, we thought these are the good bet. So we went ahead with that. .Mr. Mehrotra, while doing this there is one more issue you had to care of with your own regulator IRDA because there has been issues where IRDA feels LIC has been breaching there 10 per cent cap, which is being put in for life insurance company. Also this issue had been dropping in earlier also. You also had requested IRDA for increasing debt stake with your own rationale’. What is the feedback from the IRDA? Are they ready for the flexibility required that you are asking for?This issue had also been discussed with our regulator. Recently, we also had a very healthy discussion with the regulator but we have a target of almost Rs 45,000 to 50,000 crore in equity, so we have to have good scrips available in the market. We should have a good float in the market, so we have represented to the regulator to allow us for some concession. Nevertheless, I would like to say that these regulators have been very helpful to us and we have definitely been in touch with them and we are definitely trying to comply with whatever regulatory norms they are going to put to us. At the same time, we want to see that we are getting good scrips in the market. So ultimately it has to be a win-win situation for me and the regulator as well so that we don’t breach the norms and at the same time give good returns to my customers. .Does the markets, in that sense if I could ask you expect announcement of a win-win situation soon from regulator?I won’t say that there is any reason that we should get worried about it. I would say that the regulator has been very clear and has been giving us guidelines and we are complying with that. We have sat together, we have discussed it..But they are open to show in the flexibility asked by you? Yes, they are trying to look into the matter more closely and they are always willing to help us whenever we want any help from them. They have been very receptive to our demands and concerns. .So before moving on to other aspect, pension plan is one area which has again become very challenge area with a new regulation shipping in. How are you looking at that in the new fiscal? Because although the new regulations chipped in there is just this last quarter remaining for you? How has it been till now and how are you looking at change when you are looking at pension products?See, as I have been telling earlier the future insurance market will move around the pension and health products. But recently we look into the little hand side; we go back and see that the regulatory norms were put into regarding pension products. That has impacted the sale of pension products. Secondly, because of the new norms many of the pension products had been pulled out of the market.Today, I think LIC has the Jeevan Lakshya 6 which is available. We don’t have any other deferred annuity products in the market. See, basically what happens, the customer has to understand the distance between annuity and pension. So once we are able to give that education to a person that why pension is required and there has to be some more focus on the sale of pension products. May be from the regulatory side as well; from other insurer as well because unless the focus is there, the product will not pick up.Secondly with the new regulation which came where the investor had to only get the payout in terms of annuities that also had little impact because he could not see the cash in his hand, which he used to see in earlier, in the earlier pension products and that also had some kind of psychological effect on the sale of the product. Let’s see if with the new guidelines something is tweaked, something is modified we will be able to come up with new products. .Mr. Mehrotra what you witnessed because of the market conditions and because of the various economic factors in the FY12 you did come out with some innovative product, the health product and few other product soothing the market. So what could be the kind of mix of products that we can expect from LIC’s kitty because things are not going to be that different also in the coming fiscal? So what could be the kind of mix of products we could be looking at?We came out with some good products. Jeevan Aarogya was one of the very innovative good products which got lot of awards as well. And then we came with Jeevan Ankur which was for the children segment and then we came up with Jeevan Vridhhi. The question is ultimately the main thing will depend on the market because the market needs new, innovative products.So I need some regulatory help that the products are processed at a faster pace so that I am able to launch the product when the market needs it. Because if I launch a product when the need is not in the market, the products may not succeed in the market.Number two, going by the behavior of the market, I think we have to have focus more on the long term product and on a conventional platform because that is the basis of an insurance industry survival. Long term flow of income in terms of premium but if equity of the capital market also stabilizes, the equity market stabilizes; they will have an appetite for ULIP products as well. If there is a need in the market, we will definitely get. We would obviously not like to keep any space vacant, that we are not present there..: If you could just correct me if I am wrong LIC traditionally had a 60:40 ratio when it comes to ULIPS versus traditional products. Would you like to change the ratio? If so, what would that ratio be?See, if you look into the ratio few years back, it had squid very heavily in favour of ULIPs. So we took a conscious decision to gradually shift towards the conventional products and to close the books today I think we will be almost around a ratio of 70:30, 70 in favour of conventional (products). .It would be a different picture after a long time, right?And I think that had been a conscious decision because as if you have to generate a long term fund inflow of premium, you have to have a product where we can commit a person for a long time, to stay with me for a longer period. But at the same time, I feel there is a strong demand for single premium products in the markets as well so we cannot ignore that segment. As long as any product which carries a risk element, it should be allowed to introduced in the market. .Any numbers you would like to put up? That any number of products that you are planning to launch in?I think, next year we are looking forward to have another 6 products including in health and in pension products. .Sir, now we are, if you could just discuss in detail the taxation aspect that came out of the insurance sector in the recently announced in the budget by the Finance Ministry. Industry as a whole is a bit worried as how is it going to pan out? Any talks, any representations? What do you think should change when it comes to the taxation which is currently being proposed in the budget? The finance ministry has said that if the premium is more than 10 per cent then we should not relate it to the premium but to the term. Because we should encourage people to invest for a longer period. And they should get some benefit out of that. Because that helps us in two ways, it gives us a steady flow of income plus it gives me enough sufficient funds to invest into long term projects, for example, in infrastructure projects for the society. So to encourage that we have to have a separate window for pension as well, pension and other insurance product which gives them an incentive to keep invested and invest in such instruments which are going to help the story at large. So I think if some sort of concession is given..Any positive feedback coming in from them?We have given it to them and they have definitely looked into it, depends upon them to come out with the proposals..Other challenging aspect has been, as you were rightly pointing out, the whole process of getting recruited, recruitment in terms of the agencies. How differently it could be done? What are the hurdles being faced currently? See, basically when they switch over to online, now we know that today we have a large presence in rural India, deep rural as well, but there the people are not that computer or tech savvy that I want them to come and pass the test. So I would suggest especially for the deep rural area that we should allow the manual test. It’s all right that we can have such sort of online test in metro areas where people are little used to using computers and laptop. Some sort of a concession has to be given to our people who are working in the deep rural areas so that they are able to also participate in this whole process of recruitment of agencies. Because everyone now feels that it’s difficult to recruit agents in those areas. So some sort of a concession should come..If IRDA Chairman is listening to this interview, the three things that you would like the regulator to look at or do things differently in FY’13. First of all, number one, as I said we would like the products to come on a little on a faster pace so that when the market needs the product I should be able to introduce them. Number two, as I said there are these internet problems which we are accounting in recruitment of agencies and training of agents. And now that also has to be addressed somehow, so that we are able to give little more concession and little more support to the people in the rural area. Otherwise, I think the regulators have always been very good to the industry and they have been guiding the industry very well keeping the interest of the policy holder in mind. So I hope they keep giving us the required support and the encouragement to move forward. .Sir, you did sign MOU with the infra debt. How are things moving? How is it going to take a shape? How is it going to be in the new fiscal because that’s one area where govt has focused a lot? That’s why I said, for that I have to have a stream of inflows up premium so that I am going to go and invest into that. We have signed MOU and if you are looking into new projects then definitely we are interested in going for that so that we can give some relief to the banks that can come out. We have also signed some sort of a takeout arrangement also. .But any sum to begin within the next 6 to 8 months that you envisage that could be pumped in?We have not ear-marked any funds separately for that, you see, but we are mandated to invest into infrastructure, 15 per cent of our investment surplus. Within that 15 per cent, we will have to play this game..How do you look at take out financing?This take out thing also we have got some proposals and we have participated in it. In fact it’s a good thing for the infrastructure industry. .One investment which everyone is looking at or talking is where LIC actually wants to exit a PSU company’s MTNL, what is the update on that because you have been a long time investor in MTNL?I am not taking any conscious call on that till now. We will look as the situation develops. We have not taken any call till now. .What would be the target that you would like to set in for LIC in FY’13 terms of growth, premium and also in terms of your overall investment?See, considering the size and the volume on which we operate, I think a very nominal growth of about 15 to 18 per cent of the policies and say 20 to 25 per cent on premium would be ideal for our industrial stance we are aiming at the next fiscal as well. .You are looking at things more traditionally because of the experience you had in FY’12 because LIC has been aggressive when it comes to volume and other things for the last couple of years?As I said, considering the volume at which we work so a growth of 15 to 18 per cent is very easy for our size and so is a growth in premium about 20 to 25 per cent and I think, today also we are growing at a similar pace. And we have been going at that phase for a last few years. This year was sort of an exception because of the various factors that I have said earlier. But that’s the normal rate at which we expect our industry to grow at.

Eyeing 20-25% premium growth in FY13: LIC Chairman

DK Mehrotra, Chairman of country’s largest life insurer, Life Insurance Corporation of India or LIC, speaks to NDTV Profit’s Vijay Iyer about how the market volatility and regulatory issues affected the company in the last fiscal and what kind of steps th

NDTV Profit

NDTV Profit

Follow Us

DOWNLOAD THE APP