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Life Insurance - EXCLUSIVE Q & A SK ROY CHAIRMAN, LIFE INSURANCE CORP
05-Feb-2014
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STRONG>LIC in Search of New ‘Amitabh Bachchan’ Now

Irda’s new norms have retired some of our champion products, and new players will take a while to step up, says chairman Roy Life Insurance Corp has not only been a saviour to lakhs of families, but the government too. Especially, when few are willing to buy stocks of government-owned companies, LIC is eager to buy and help government meet deficit targets. In an interview with ET’s Shilpy Sinha and MC Govardhana Rangan, chairman SK Roy says investments are rational and rock solid. Edited excerpts:


We recently had LIC bail out State Bank’s share sale. Last year also, LIC saved the government. Is LIC becoming a kind of government ETF?

We are long-term players. There has been appreciation across the board in all companies that we have invested in. For a day, week, fortnight if the stock has underperformed, it does not affect me as a longterm investor. It is not fair to say that LIC bails out anybody. There have been instances of offer-forsale where LIC has scrambled to get something. That is contrary to the popular perception that we bail out. It is a market-determined price and if my quote in not competitive, I will not get.

With the kind of investments done by LIC, will it be able to meet the liability 20 years down the line?

Some are drawing comparison with UTI. There has never been a doubt in our minds. We maintain 154% solvency. That is not a fair analysis to make. You make profits in 9 things and not making in one should not be a worry. There is no doubt that UTI will regain its past glory. We are a highly regulated entity under Irda, government and Parliament oversight. Our life is a series of regulations. You may be regulated, but your investment style and interest protection are always questioned. LIC is seen as a passive investor. We have added nominees in some companies. We are constantly engaging with various companies. Independent directors have certain duties to fulfil, and LIC’s nominated directors will fulfil that. I do not like to use the word active or passive. These are old, well-governed companies of India. You must appreciate that companies where our nominees are sitting are solid companies with good corporate governance. You cannot have Don Quixote chasing windmills. Whenever required, people will play their role. The moot question is whether they are effective or ineffective. I think they are effective.

You have already reached the equity investment target of . 40,000 crore this fiscal. With many PSUs set to tap your doors, how much will you raise the target?

It is just a figure, we put a threshold limit that we will not do less than this. This year, our new business and renewals have done well. So, a number of investment opportunities has to be kept track of with the inflow that is coming in.

All premiums coming in have to get invested. Since core business has done well, what to do with the money?

I can’t put a figure. I do not know what kind of opportunity will come to us. Insurers world over are facing low returns. In India too, you are mandated to invest half the premium in government securities. Won’t this reduce the returns over a long term? The challenge is in getting fair returns which I can then pass on to my stakeholders. Getting money and investing in government securities and corporate bonds is not a challenge. That happens as per the system. To make a decent profit from our investments is the challenge. The mandatory investment in government bonds which some call financial repression…. G-sec is a very attractive investment for us.

I can’t see anything which can compete with it in terms of returns in the short term. Corporate borrowing is not aggressive as things stand. Out of all the opportunities available, G-sec is the most attractive. We have no discomfort with it. It does not stop us from exceeding the limit. We are long-term investors and there is nobody giving tenure as long as G-secs. It matches with our requirement. The industry has been hit by slow growth over the past few years.

Will the new norms cripple you further?

We have done well for three quarters. But future is very uncertain. A new product regime has come in. Some of our products which are phased out were like Amitabh Bachchan. We had a product which was introduced in 1958. Without doing anything, it used to give 12-13% of our sales. It was called endowment plan table number 14. After Sachin Tendulkar, Sourav Ganguly, Rahul Dravid’s retirement, Indian players go to England, New Zealand and get defeated. Our products, which have gone out, are like Sachin Tendulkar and Amitabh Bachchan of the insurance industry. For the new generation to take their place, it will take time. Today 11 players were trying to do something in New Zealand, so like that it will take some time for these products to sell.

So it is going to be a struggle for some time?

Five years down the line, these products will start selling. I am very confident we will meet this year’s target. Usually, in March we do business of . 8,000 crore. Assuming that this year’s March will be less than that, still we will do another . 5,000 crore. We have already done . 28,000 crore and our target is . 33,000 crore. What will be the impact of this transformation? The new product regime has to settle down. This is a job that will take time. There are no short cuts to it. Two things need to be done - distributor education and customer education. Both these are long haul exercises. Few years down the line, success of a company would depend largely on how they have done distributor and customer education. It is the key for the next few years. You remain a giant despite private sector competition.

Why is it that the private sector is not able to replicate in insurance what happened with banking?

Why others are not doing well can be best answered by them. In all fairness, we must admit that the last three-four years have seen drastic transformation in the insurance industry. When transformation happens, it is quite likely that old established players are better able to transform than the new ones. In LIC, we have the capacity to manage change.

Source : ET back