The Life Insurance Corporation of India, the country’s largest sovereign insurer, released a statement on October 9 dispelling rumours about its financial position, reiterating that it is in “sound financial health”.
The statement was in response to news circulating on various social media platforms, as well as in mainstream media, about the alleged erosion of LIC’s wealth and how it had lost large amounts of money in its investment portfolio of debt and equity instruments.
Terming the news and messages “factually incorrect, uncorroborated and intended to tarnish the image of LIC brand and also create panic in the minds of its policy holders”, LIC asked its policy holders not to take cognisance of such “misleading” news and assured them of LIC’s financial health.
The public sector insurer also said that it has declared the highest ever bonus amounting to more than Rs 50,000 crore to its policy holders for FY 2018-19. Its market share as of August 31, 2019, based on the number of policies is 72.84 per cent and for the first-year premium is 73.06 per cent.
There is no denying the fact that LIC is a household name and stays the leader in the field. It has also done well to see off competition from private life insurers for the past two decades.
Though it has lost its monopoly to private insurance players and competition has made the market more scattered, LIC has managed to hold on to its turf on most parameters.
Based on total premium income, LIC’s market share was 69.36 percent in 2017-18. In renewal premium, LIC continued to have a higher share at 69.35 per cent, compared to 30.65 per cent share of private insurers combined.
LIC continues to be the dominant player in single premium products, which contribute 33.48 per cent of its total premium income. It also dominates the annuity business with a 95 per cent market share. By all accounts LIC’s brand equity is high and the trust it enjoys because of sovereign ownership is simply unbeatable.
With assets under management of close to 31 lakh crore, and providing some sort of a cover to a fourth of India’s 1.3 billion people, LIC is among the world’s top insurers. However, size alone does not reflect its financial health.
As a public sector insurer, the influence of the government in asset management is seen as its biggest weakness. As a government financier, the LIC has often ended up as a lender of the last resort to the government. In the past few years, LIC has had to bail out stressed lenders like the IDBI Bank and help government divest its stake in public sector units.
According to Handbook of Statistics on Indian Economy, an annual document published by the Reserve Bank of India, the LIC invested Rs 10.7 lakh crore in the public sector, some of them ailing banks, between 2014-15 and 2018-19. In contrast, since its inception in 1956, LIC’s cumulative investment in public sector was Rs 11.9 lakh crore at the end of FY 2013-14.
Thus, the investment of Rs 10.7 lakh crore in five years of Modi government’s first term took the cumulative investment LIC has invested in public sector to a whopping 22.6 lakh crore, an increase of 96 per cent in just five years. The 10.7 lakh crore is also a 72 per cent jump from 6.2 lakh crore the LIC invested in public sector in five years of UPA-2, according to RBI data.
The data also shows that while LIC’s investment in the public sector in five years ending March 2014 (UPA-2) had doubled, its investment in private sector firms had also risen nearly 70 per cent during that period.
In sharp contrast, in five years of Modi government’s first term, the share of private sector in LIC’s total investment came down from 21 per cent in March 2014 to 15 per cent as of March 2019, while the share of public sector in LIC’s investment increased from 79 per cent to 85 per cent during the same period.
LIC is a major stakeholder in a dozen state-owned companies, including several PSU banks like SBI, PNB and Allahabad Bank, NTPC, Bharat Electronics, GAIL, Bharat Petroleum, Indian Oil, BEML and Nalco. Among the recent investments, LIC bailed out IDBI Bank by acquiring a 51 per cent stake from the government in August 2018, by infusing about Rs 21,000 crore to revive the ailing bank.
These investments have come at a time when the shares of public sector firms have lagged their private sector peers. In five years from May 2014 to April 2019, the stock market has gone up substantially: both Sensex and Nifty advanced almost 60 per cent.
However, while the overall stock market has grown, some of the high profile and big investments made by the LIC in stocks of public sector companies have eroded in value, according to an analysis done by NDTV and The Print.
For instance, The Print analysis shows that LIC’s investment of Rs 5,713 crore in the IPO of New India Assurance Company in November 2017 is down by more than 80 per cent. It’s a similar story for General Insurance Corporation, in which LIC invested Rs 5,641 crore in October 2017; the value of LIC’s investment has nearly halved. The case with the public sector insurer’s investments in HAL, IDBI Bank and NTPC is no different either.
The value of LIC’s investment of Rs 2,843 crore in HAL in March 2018 has fallen by 38 per cent; the value of its equity holding in IDBI Bank is down 47 per cent in one year and in NTPC, in which it picked up 40 per cent of the shares offered by the government in August 2017, the value of LIC’s investment has come down by 30 per cent.
All in all, according to The Print, LIC has seen the value of its investment in five major stocks erode by more than 20,000 crore in two years. This brings the question: Is LIC being used by the government to compensate for the shortfall in its revenue and bail out troubled public sector enterprises? At least that seems to be the case, as out of the current LIC’s investments in PSUs, 90 per cent of them have happened in the last five years and some of these investments have not happened based on merit.
However, it must be said here that despite short-term pains with some of its major investments in recent years have seen huge erosion in value, according to CNBC-TV18, LIC has also seen a 62.7 per cent rise in the value of its overall equity holding over the past three years.
ALI Chougule is an independent Mumbai-based senior journalist.
