Market doldrums could hit Ulip sales

Life insurance companies are putting on a brave face amid the jittery stock market, but the coming months will be crucial for unit-linked investment plans (Ulips), which constitute over 90% of life insurance policies at present.

Analysts and industry insiders apprehend a slowdown in the next two quarters. A Credit Suisse reports says new business premium growth could slow down significantly to 20-45% on a year-on-year basis.

Growth in new business premium in April-May was 11% for the industry. While the private sector grew 73%, the state-run Life Insurance Corp registered a decline in growth of 17%.

Ulips have always been hot picks in the life insurance basket and past figures indicate sales did not wane even during a market downturn. "

"The relatively strong growth rates for April-May 2008 suggest upside to our growth forecasts," the Credit Suisse report says, before warning, "However we remain watchful. Sales will weaken significantly if markets remain weak."

According to Morgan Stanley, investors have been looking at life insurance as a way to participate in the bull run. "We believe the over-penetration in life insurance was driven by investors using the insurance route to invest in markets. If markets remain weak, then we may see continued slowdown in life insurance business in India," analysts at the investment bank said in a report.

Most insurers contacted by DNA Money said the stock market volatility has not seen people staying away. They said since Ulips are positioned for the long term, there are few reasons to worry.

But some insurers admit volume growth could be hit if market volatility continues in the long run.

A report by Alchemy Equity Research says, "After a sharp slowdown in March 2008, we believe that the sector will continue to face pressures due to capital market turmoil even as it grows steady."

Source: DNA Money