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It is usually the listed companies that figure on the radar of ET500. But Life Insurance Corporation of India is an exception. We cannot miss LIC, which is corporate India’s single largest shareholder and investor. For India Inc, it emerged as an investor of last resort at the peak of the global financial crisis. In a conversation with ET , LIC chairman T S Vijayan shares the philosophy of India’s insurance behemoth.

LIC has a huge and diversified equity portfolio with over 600 quoted stocks. Do you follow any particular theme while investing in stocks?
We have an investment committee supported by a large and a well-equipped research team that makes investment decision. They work in full independence with hardly day-to-day interference from the top, except when the subject comes for discussion at the board level. It’s difficult to say that we follow any particular philosophy or style while investing in stocks. Our mandate is simple, maximise returns on policyholder funds.

This means that we invest in companies that offer sustainable returns over long term. And if the market fluctuations create opportunities as in 2008, we try to take advantage of it. You would know that as an insurance company, we create long-term liability on ourselves and it has to be matched with an equally long-term asset and equities. But we should not over emphasise equities. Only 10-15% of our investible surplus is invested in equities. We are much bigger investor in the debt market, which includes corporate bonds. However, we only invest in triple A rated companies.

In 2008 LIC emerged as one of the single-largest investor in the secondary market. While the decision turned to be wise in the hindsight, it must have been brave to accumulate frontline stocks, at a time when the market was tumbling like ninepins. What was going in your mind while taking this decision?

Firstly, we never get too worried of the market fluctuations in the short term. We invest to capture the long-term value creation and stick to our investment decision through the market ups and downs. Second, you may call our investment strategy in 2008 brave, but it was not that complex. As you would be aware that most of the leading stocks had been beaten down to incredibly low levels, despite little or a small change in the businesses. Though it won’t be proper to discuss individual stock, take for instance any metal producer-they had their plants, raw materials were there and consumers were also there.

But most of the stocks had fallen to such a low level as if these companies would vanish. The situation was similar in banking and financial services sector, where most stocks had fallen much more than the market. It presented a great opportunity to pick best assets at very low prices and we took advantage of it. But the opportunity was open to everybody and LIC was not unique in that. What makes us different is that we always have resources available with us and its availability is not directly related to the market condition. This luxury is not available to other institutions investors such as mutual funds, whose fund flow is highly correlated to the market movements.

LIC is now one of the largest shareholders in companies from Tata, Birla and Mahindra Groups, while you exited companies like Hero Honda? What triggered these investment decisions?

We invest in a particular company and not in a group. You can’t help it if companies with long-term potential happen to be from any particular business group. If we see an opportunity, we invest. And if we think the time is right and find a lucrative price, we exit. So if we feel that a company has adequately appreciated, we simply book profits. So in that sense we behave like any other investor.

But LIC also lent a large sum to companies such as Tata Motors last year? Any special reasons for this.

It was again a purely commercial decision. By rule, we only invest in top rated companies and Tata Motors was AAA rated company. Besides, the paper was available on lucrative terms so we took advantage of the opportunity. In fact, any rational investor would have been more than willing to lend money to the company given the terms offered. You should not read too much our lending money to a particular company. We an active player in corporate debt market and there is an amount budgeted for it at the beginning of the year. Tata Motors debt programme came into the limelight due to the economic environment surrounding it.

Every time the stock market falls sharply, we hear that the government asks LIC to step in as a buyer to curtail the fall in the market. How much your investment decision was influenced by the government last year?

I can’t understand the origin of the story but every time the market falls sharply, next day papers have a story explaining how LIC received a telephone call from some higher-up in Delhi to intervene in the market and support it. But I am still waiting for that call. It doesn’t work like that and even if some in Delhi wishes us to do that. I am wondering which number they will use, because investment decisions are not taken like that. We follow the guidelines set by IRDA and there is a proper system in place to take investment decisions. And no one has the authority to tinker with that just to suit some short-term objectives.

How is your investment philosophy similar or dissimilar from say mutual funds?

Mutual fund is short-term money. Mutual fund investor can exit anytime. So liquidity is a major risk in running that business. The profile of our customers is that they are here for a fairly long term. Thus, since investors empower us with their money for a good time period, while making investment decisions, we study the feasibility of the companies in generating returns over 10 -15 year period.

But you cannot assure safety in equities?

Individual companies may do face problems, but when we look at them as a pool, the overall money management has assured safety of the investors’ money so far. I cannot assure what will happen in future, but till today, the money has been safely managed.

You must also be getting offers from big companies to pump in money when they are in need of cash.

Yes we do. But we do not encourage investment in IPO or private placement, unless it is our own company or a government company.

LIC has emerged as one of the largest and financially most successful PSUs in the country. How much of this success is due to LIC being a government owned entity?

It was Government’s decision in 1956 to nationalise the life insurance business in the larger interests of the nation-mainly to mobilise people’s savings and to finance country’s economic growth. In 53 years, LIC has fully contributed to the nation’s growth. However, the journey has not been easy despite it being a government owned entity. The biggest task was to win the trust of our customers and that took decades to build.

However, at no point during this tumultuous journey, LIC has had to invoke the government guarantee for its benefit. Well, that we are a PSU backed by Sovereign power has definitely helped. But then are several other institutions with the PSU tag that have failed to perform in a liberalised economy. We were a monopoly till 1999 and it has been hardly 10 years that we have faced competition. And I must say we continue to grow and thrive post-liberalisation when many erstwhile monopolies are struggling.

For a large part of LIC history it had monopoly on domestic life insurance business? How did the organisation evolve after the liberalisation of the insurance sector a few years back?

With the advent of liberalisation, new concepts like bank assurance, alternate channels, brokers and ULIPs have evolved in the wake of a booming economy. This was the time when the investors were getting market savvy and internet was gaining ground. With the liberalisation of the sector, LIC has evolved from the status of being the ‘only insurer’ through ‘securing leadership in the face of deregulation to becoming the ‘insurer of choice.’

LIC has always been upfront in organisational change and development. The first computers were installed in LIC way back in 1963 and the first microprocessor came in 1981, a time when computers were still looked at as a novelty in India. In 1965 policyholder’s council was set up in each division. In 1982, a re-organisation scheme was implemented for growth and development of the organisation, where decentralisation of activities to branch level was done. Front-end technology was introduced in 1993 to enhance servicing which was much before opening up of the private sector. So change has been a constant process in LIC.

Post-liberalisation LIC confronted competition with new business strategies setting new paradigms in areas of IT initiatives, customer conveniences, customer sensitivity, product design and positioning besides designing new marketing initiatives to further penetrate the market. Restructuring of distribution channels and revamping of customer service delivery mechanism are some of the steps in the evolution of LIC in the post-liberalisation era.

PSUs are believed to lack efficiency where the organisational structure fails to deliver. But here we have LIC, which has been able to deliver and grow despite competition.

The DNA lies in our people and their efficiency. Right from the junior staff to the topmost executive associated with LIC is engrained with the fact that he is the trustee of the policy-holder’s money. This makes our people grounded and work towards the welfare of the nation. That is the philosophy of LIC. So, in a company like LIC, where the majority of expenses are people expenses, revenues top, while the costs decline as the productivity of our people increases.

So how do you keep you people motivated?

Training has been our key objective. In the lines of Indian Administrative Services, we have our own management development centre, officers’ training colleges, eight zonal training centers, 23 sales training centers etc. All these are fully residential training centers. Then we also have nearly 600 agent training centers across the country. Secondly, LIC has a huge force of people who are 45 and above. So we have now started a computerisation programme. Each employee participates in this program to learn about the technological changes, customer changes, competition in the market etc. This kind of communication keeps the employees updated about the changes in the society. And we got a great response from such an exercise. Unless the people change with the times, the organisation cannot.

Have you noticed any change in approach towards a PSU like yours post the market meltdown of 2008 by those seeking jobs, especially the highly qualified IIM graduates and Chartered Accountants?

Well, unfortunately we do not have a lateral recruitment program. In this organization people have to start from the bottom. Even if IIM graduates want to join, they have to begin from the starting point. There is no intermediate recruitment program currently. So we do not getting IIM or equivalent graduates easily. Moreover we cannot offer that kind of lucrative pay packs as private players do. So what we have now started is to train people who have spent atleast 10 years with in institutes at par with us in IIM. We have tied up with IIM-Ahmedabad for a Post Graduate Executive Program for our employees. We select 50 officers, across the country, and put them through this one-year program. The program is entirely financed by LIC.

But don’t you think it is even more difficult to retain the IIM talent, especially in a PSU environment?

We have a separate career plan for them, a separate evaluation program for them. Also we keep injecting a dose of nationalism in them to serve the nation rather than seek money. Then we have sub-programs for important personnel like actuaries where we sponsor their specialized courses, which no private company would ever do. On successful completion of these courses we also pay them some special allowances. So we do have some internal programs in place to retain the talent.

Have you seen a change in the employee turnover ratio (especially cases like those joining the private players) post the market meltdown?

The employee turnover was indeed huge initially, especially in the case of actuaries, marketing and IT personnel who were leaving us in huge numbers. But now it has come down. Also other companies have somewhat stabilized their hiring procedures since they have got enough manpower.

Have you made any changes in the pay structures as well to retain the talent?

No, we do not have any specialized pay structures. Our emphasis is on the overall people development through right kind of training and mentoring.

Haven’t your salaries become competitive after the 6th pay commission?

We are not covered by the 6th pay commission. But we do pay well our specialized personnel like the IT, Actuary, Investment and Marketing. But it is our excessive training that goes a long way in retaining people especially those belonging to Tier II and Tier III cities.

There have been instances of price or tariff wars in the general insurance as well. So have you envisaged something similar in life insurance?

General insurance is like a one-year contract. If you start a tariff war, there is always a scope to revise the same next year. But life insurance is a long term contract. Here the contract between the policy holder and the insurance company stretches for years together. So there is not much scope for revising prices every now and then.

LIC has off-late reduced its ULIP offerings and is once again concentrating on traditional insurance products which are its forte…

Yes, nearly 80% of our policies today are traditional. But it is not a conscious decision to give more weightage to traditional plans vis-à-vis the ULIPs. It is a matter of customer choice. And our traditional products are well received in the market since we give guarantees on it. On the other hand one cannot guarantee a ULIP investment since the returns are market determined.

What is your outlook on premiums changed by insurance plans in the near future?

Changing the life premium is very difficult for well-established players like us. We have both old and new customers and premium can be changed only for new customers. So what we do is we give a higher bonus to the old customers. So even though the premium is unchanged, investors can reap in higher returns.

When how would you incorporate the changes in the premium rates once the new mortality tables are ready which are expected to be available by the end of this year?

There are two types of policies -with profit and without profit. If the premiums are reduced, we give a higher bonus to the holders of with-profit policies. In case of without-profit policies -that do not participate in the profits of the company, historically whenever the premiums have gone down, we have increased the sum assured for the policy holder without meddling with the premiums charged.

Before 1999 LIC was the sole insurance provider but now you have extensive competition outside?

Very true. There is now a comparison for our schemes. But you would agree that when our competitors compare, they compare themselves with LIC, which is their standard benchmark. For us, we have 21 small players to be compared with and so we do not even have a prominent benchmark for comparison.

Your market share has come down after the entry of private players. Does this worry you?

Declining market share does not imply that our growth has been affected but that the market has expanded. Infact our growth has been strong despite the entry of private players in the industry. As far as market share is concerned, it is purely a function of competition. There are players who may be growing faster than us but then it is at a relatively smaller base.


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