Date:27/06/2006 URL: http://www.thehindubusinessline.com/2006/06/27/stories/2006062703110600.htm

Back PSU general insurers buy into blue chips

C. Shivkumar

More focussed on dividend yields than investment gains

The insurers have also picked up some of the Tier-II bonds floated by the public sector banks.

Bangalore , June 26

Public sector general insurers have bought large chunks of blue chip equities taking advantage of the recent market meltdown.

Sources said that till early May, life insurers were sellers of equities. For the last financial year alone, each of the PSU insurers had made profits of at least Rs 500 crore in equities sell-off and accordingly boosted their net worth.

The National Insurance Company Ltd's Chairman and Managing Director, Mr V. Ramasaamy, said, "We have bought some equities during the period as part of our routine purchases." But insurers during the period have also sold, as part of their treasury/investment management activity and to boost their investment earnings. These operations had helped insurers offset losses in some of their underwriting business.

But the latest round of equity buys by insurance companies was more focussed on dividend yields, instead of just capital gains as in the past. Accordingly, the insurers were inclined towards picking up banking stocks, especially PSU banks. This was also because many of these scrips fell within the insurance regulator's approved category of investments.

The insurers have also picked up some of the Tier-II bonds floated by the public sector banks. These included the recent float of the State Bank of India bonds, priced at 8.8 per cent for 10 years and upwards of 9 per cent for tenures beyond 10 years.

The sources said that the securities were liquid for the insurers, since all of them were eligible for CBLO (collateralised borrowing and lending obligations) markets. (CBLO is a form of ready forward for financial intermediaries not allowed to participate in the inter-bank call markets and the RBI's repurchase operations.) The investments in bank bonds, the sources said, also helped insurers boost their average yield on investments.

Average yield on investments had dipped for the insurers to as low as 6.5 per cent in 2004. The reason for this fall was largely on account of low coupons on government securities during the period.

Guidelines

Regulatory guidelines mandate investments in central government securities at 20 per cent of total assets. Another 30 per cent is to be held in State Government securities.

The actual holding in central government securities, however, is much higher than the prescribed guidelines and closer to about 60 per cent.

If the current trends continued, the average yield on investments this year would rise likely.

This rise would be useful, the sources said since it would partially help them push up income from investments with the rise in the mean yields. Anticipations were that the mean yield on investments would be upwards of 8 per cent for the current year.

This rise would still help them sustain the current level of underwriting losses in the miscellaneous portfolios that include motor and medical, where the claims are in excess of 100 per cent of the premium collected.