Private insuarnce majors have shied away from launching individual pension policies in the current fiscal after the Insurance Regulatory and Development Authority (IRDA) made it manadatory for them to offer a guaranteed return of 4.5%.
The total number of individual pension policies sold in the current fiscal year (till December 31) has dropped to 0.1 million from 3.4 million in the year-ago period. The drop in such products is also said to have hit the life insurance sector’s overall growth in 2011-12, sources said.
Total premium collected during the first nine month period of the current fiscal year also decreased by 3% to R1, 80,240 crore from R1,86,396 crore , according to data released by the Life Insurance Council.
Pension products constituted 25-30% of the total premium collected by the industry. In 2009-10 around R65,000 crore came from the sale of pension products — representing a quarter of the total premium collection of R2,61,025 crore.
“The new pension attempted to provide choice in the way insurers should provide guarantees on pension products,” said V Viswanand, director and head, products and persistency management, Max New York Life Insurance. “However the choice of providing a guaranteed annuity rate at the time of purchase of the deferred annuity contract is a guarantee that is difficult to assess, quantify, mitigate and manage due to the uncertainty associated with longevity risk and interest rate risk.”
Companies would have to move away from equities and increase debt exposure, in case they have to provide guaranteed returns. “This would affect profitability,” he said.
Firms have said that to provide a guaranteed return of 4.5%, companies would have to earn about 6.75%-7%.
Insurance companies also held that an underdeveloped long-term debt market offers limited options for them to park their money that would ensure a steady risk-free return for tenures extending up to 30 years.
According to regulatory requirements, companies were mandated to adhere to the new ULIP norms by September 2010.