Two people close to LIC, requesting anonymity, said India’s largest institutional investor, the state-run insurance giant, plans to change its investment strategy and strengthen its ‘materiality’ policy with respect to related party transactions. is making. Equity with LIC is worth more than investment 10 trillion, while the value of its total assets under management is approx. 41 trillion.
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“LIC is examining whether it can curtail its investments in infrastructure-related companies including cement manufacturing, power generation companies and discoms. A new board exists, and any changes to such strategy would be subject to committee and board approval,” said one of the two people.
Emails sent to LIC spokesperson did not elicit any response.
As per the Insurance Regulatory Development Authority of India (Irdai) norms, life insurers should have at least 50% of their investible surplus in government securities, at least 15% in infrastructure related assets and the remaining 35% in equity, non-convertible Debentures to be posted in Mutual. Money and certificates of deposit, among other assets.
LIC is also planning to reduce its stake in its subsidiaries such as LIC Housing Finance Ltd, LIC Mutual Fund Asset Management Company Ltd and IDBI Bank, people said.
“IRDA has advised LIC to reduce investment in certain subsidiaries and associates. LIC also wants to curb the risks arising out of over exposure in certain assets and single entities,” the first person said.
LIC’s plan for infrastructure-related companies to reduce their exposure is to hedge potential risks arising from non-performing assets.
In the letter dated March 31, 2021, Irdai allowed LIC to hold 49% in LIC Housing, but the regulator advised the insurer to “explore the possibility of reducing its stake in LIC Housing Finance”, so that the limit prescribed by Irdai Bring your exposure within.
Irdai allows insurers to invest up to 20% in a company, while they can offer up to 5% of their annual corpus as a loan to a company.
LIC holds 45.24% stake in LIC Housing Finance Limited. It holds 49% directly in LIC Mutual Fund and an additional 16% through LIC Housing Finance, which owns 35.3% of the asset management company.
In another significant change, in its dealings with related parties (subsidiaries, associates and their related persons) and in dealing with creditors and borrowers, LIC has increased the consolidated revenue and embedded value as a percentage of such transactions to ensure transparency. Planned to lower the materiality limit, as mentioned above.
As per Securities and Exchange Board of India (SEBI) norms, any transaction with a related party is significant if the transaction value exceeds 10% of the annual consolidated revenue of the listed entity.
On February 11, LIC’s board adopted a materiality policy to identify material owed to creditors. Accordingly, payable to any creditor of LIC whose monetary value exceeds 320.27 crore (for the previous financial year) has been treated as ‘physical’. This limit could become even stricter once its policy changes are implemented.
As per the extant policy of LIC, LIC has only two physical creditors as on 31st December 2021, on whom the total amount due to LIC is 2,419.42 crore. SEBI norms require the board of a listed company to formulate a materiality policy and review it regularly.
To be sure, Milliman Advisors LLP, which was hired by the government to assess the embedded value of LIC, has mentioned in the share sale documents filed with SEBI that the criteria for materiality is based on the embedded value at the aggregate level. should be set at 8%.
Milliman estimated that the embedded value has fallen below 2.5% from requirements as of 30 September 2021.
In its prospectus, LIC stated that it does not currently maintain creditor-wise details and the amount owed by the Center on each creditor, and hence exempts the insurer from disclosing the consolidated number of creditors from SEBI’s listed rules. It fell
However, this may change, and as per the latest plan, LIC may start disclosing creditor-wise details and the amount owed to each creditor.