Investment Insurance Companies Holding Back Investments In Equities

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Investment Insurance Companies Holding Back
Investments In Equities
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• Owing to uncertainties, domestic financial
  institutions particularly banks and insurance
  companies are holding back investment in the
  equity markets.
• Banks investments in the equity markets have been
  shrinking since the beginning of current
  financial year. As of 24 August 2012, outstanding
  shares of banks in public and private sector
  companies stood at Rs 37,510 crores as against Rs
  38,830 crores in corresponding period last year.

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• As far as insurance companies concern, non-life
  insurance companies have made it clear that they
  will be not in position to invest in equity
  market this is due to Insurance Regulatory and
  Development AuthorityIRDA) stiff guidelines
  provisioning of liabilities under motor
  insurance.
• Reluctance to invest in equities is also driven
  by solvency concerns solvency is the excess of
  capital and value of investments over the insured
  liabilities. This year insurers are expected to
  reach a solvency margin of 1.4. However,
  solvency is not a concern on existing
  investments, since they were acquired during
  early 90s. Those holdings are valued at their
  historical costs. At current market prices it
  gave insurers a cushion in the form of hidden
  reserves.

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• Investment Insurance are being cautious and
  investing only in large cap companies
  particularly in sectors like IT, banking,
  infrastructure and engineering.
• Instead of equity markets, insurers prefer to
  invest cash surplus in short-term high-liquidity
  instruments.
• At present insurers are allowed to invest 35 of
  their corpus in equities. But most of the private
  sector life insurers are cautious due to capital
  constraints. Only Life Insurance Corporation of
  India (LIC) is investing in equity markets though
  it has preferred to cherry pick the investments,
  with preference mostly for public sector banks
  and other public sector companies.
• Private sector life insurers are giving priority
  to investment security instead of returns.

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