Trying to persuade Irda to tread a middle path and drop the idea of scrapping the net asset value products entirely.
In a last-ditch effort to save the controversial “highest NAV guaranteed products”, the Life Insurance Council, which represents life insurance companies, is set to take up the matter with the Insurance Regulatory and Development Authority (Irda).
According to sources, the insurers are trying to persuade the regulator to tread a middle path and drop the idea of scrapping the NAV products entirely.
Irda, on the other hand, might consider their plea, however, it will attach some stringent riders.
| INSURANCE FIRMS’ AGENDA |
| * Five-Six life insurance co CEOs meeting Irda by end of this week |
| * Insurers might have to go for higher provisioning |
| * They will have to provide greater disclosures |
| * Irda might allow only one fund annually under highest guaranteed NAV |
Highest NAV (net asset value)-guaranteed products became largest-selling unit-linked insurance policies (Ulips) since the new guidelines on Ulips came in September 2010. Under such products, customers are guaranteed returns based on the highest NAV which the policy has achieved during the entire term of the insurance plan. Currently, it accounts for nearly 20 per cent of the Ulip sales in the industry. Leading insurance players typically raises money through three or four issuances throughout the year.
The controversy surfaced last month, when Irda informally sounded out its discomfort about the highest NAV-guarantied products on the grounds of perceived “systemic risk” associated with way the funds are managed, since such products give more emphasis on debt instruments and run the risk of heavy sell-off in equities in case of a stock market fall.
Following Irda’s discomfort, which also did not renew any such policy, leading private insurers like ICICI Prudential Life, HDFC Life, Bajaj Allianz Life and Birla Sun Life, who have at least one such product still in the market, have either withdrawn or set to withdraw the ongoing trance shortly. It is very unlikely that any new products will come out in the market as the regulator is not approving any new such products.
If sources are to be believed, the insurance regulator might allow only one such fund annually per insurance companies. This apart, insurers might have to go for higher provisioning for this category. Second, Irda might ask the insurers to attach an additional disclaimer or declaration with such products, explaining the nature, allocation and return from these products.
Last week, the insurance regulator has expressed some key concerns about the way funds are being managed by the insurance companies when the equity market is acting volatile. Later this week, key officials of five-six life insurance companies, representing the industry, are likely to meet the regulator and discuss the matter further.
“Not only about equities, Irda has also sought clarification on how the funds are being managed in debts, for instance, what could be the possible risk of a lock-in, when bond yields are high,” said a chief investment officer at another life insurance company.
Besides, the insurance regulator is not comfortable with the way these products are being pitched to the customers. Since these are debt-heavy products, fundamentally these products not expected to do as well as the simple equity-oriented schemes.
“We are willing to offer additional disclosures to the customers, mentioning that these products are primarily debt-oriented and returns would be average, that is more than debt but lower than normal equity schemes,” said an official at a Delhi-based insurance companies.
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