How LIC invested policyholders’ funds in shares over the last 5 years: Finance Ministry answers

If you have purchased a LIC policy, you would want to know how the insurer invests your funds, especially how it decides to invest in shares of listed companies.

"Life Insurance Corporation of India (LIC) has informed that during the last five years, it had different level of exposure in listed companies. Such increase or decrease in stake in such companies was based on LIC’s independent investment assessment, approved investment framework and taking into consideration the future outlook of the company/ies," Chaudhary said.

However, he added that providing a list of companies, in which LIC has invested, may not be "commercially prudent" and "could affect LIC’s financial interests."

Rules to govern investments

According to the minister, LIC’s investments are governed by the following provisions;

• Insurance Act 1938

• IRDAI Investment Regulations

• LIC Act 1956

• Internal Guidelines of LIC approved by Investment Committee and Board

• SEBI Regulations

• RBI Regulations

• Approval process under LIC's internal investment framework

"Investment decisions in equities of private companies and PSU companies, are taken after considering factors such as the fundamentals and financial performance of the investee company, business prospects etc., based on the equity investment criteria and due diligence and following the prescribed norms and Standard Operating Procedure (SOP) in this regard," Chaudhary said.

Audit and review

The minister said that concurrent auditors independently verify the checks and controls for all investment transactions. "Additionally, these processes are reviewed by Statutory Auditors, System Auditors, IFC Auditors, and Information Systems Auditors."

LIC also follows the below steps for strengthening of transparency, accountability and risk management in the investment of policyholders' funds:

• Equity investments are undertaken within Regulatory framework of IRDAI, Insurance Act, the approved investment policy and SOPs, which provide the broad parameters for investment decisions, limits and approvals.

• The portfolio’s returns are compared to benchmarks, industry standards and objectives. Benchmark for equity/ULIP investments is NSE 200 index/NSE 100 index.

• Review of portfolio is taken periodically (Monthly, quarterly & annually) and presented to the Competent Authority. The consistency of the performance over various periods is evaluated to ensure long term goals of the funds.

• Review of assets allocation and sector exposure is carried out to ensure they align with the investment strategy, risk tolerance, regulatory guidelines and product mandates.

• Portfolio rebalancing is carried out as and when required. The investment portfolio is reviewed by LIC Investment committee periodically.

• A stop loss mechanism exists to monitor continuous decline in stock values, with such stocks presented to the Committee for review.

Chaudhary shared the above details in a written reply to multiple queries related to stock investments by LIC in the Lok Sabha. The questions were asked by Member of Parliament Rajeev Rai.