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C. Shivkumar

The increase in mean yield was helped by some savvy treasury management, whereby insurers sold some of their equities and moved into sovereign papers.

Bangalore , April 7

INVESTMENT incomes of insurers have increased during the last fiscal driven by the rise in yields of government securities.

Insurers park the bulk of their investible corpus in government securities for liquidity purposes.

According to industry sources, during the last fiscal, the average yield on investments for non-life insurers rose above 8 per cent after a gap of almost two years.

The mean yield on investments had dropped to as low as 6.5 per cent in 2003-04. This is partly because the average yield on government securities had dropped to as low as 5.1 per cent during the period.

The sources said the increase in mean yield was helped by some savvy treasury management, whereby insurers sold some of their equities and moved into sovereign papers, particularly long-dated securities.

These papers were picked up at very high yields as banks had opted for selling some of their high coupon securities in a bid to shore up treasury incomes.

Besides, banks also derisk their portfolios, by shrinking the average maturity of their investments.

In fact, insurers have seen bankers' derisking as an opportunity for moving into long-dated papers. Their focus was on papers which have maturity profiles in excess of 10 years, though occasionally they have also picked up 8- and 9-year papers that have high coupons.

In fact, their appetites have also extended to State development loans in view of banks' eagerness to liquidate them. Insurers particularly, the life-insurers, prefer long-dated high coupon papers so as to maintain the current income flows.

In fact, among the papers picked up by them are the 11.83 per cent 2014, the 11.83 per cent 2015, 10.47 per cent 2015 and the 12.60 per cent 2018.

Both the 2015 papers were picked up at yields around 7 per cent. The long-dated papers were picked up at even higher yields.

The sources said insurers were able to pick up these papers at bargains after booking hefty returns in the equity markets.

Each of the public sector general insurers was estimated to have made profits in excess of Rs 400 crore each by divesting some of their equity holdings.

A large portion of these funds was pushed back into government securities towards the end of the fiscal year. These were acquired towards the end of the fiscal when yields really fell. Besides, insurers have also seen large accretion in premiums, driven by the 7 per cent plus growth in GDP.

Although general insurance penetration in the country is barely one per cent of the GDP, every one per cent growth rate tends to translate four to five into 4-5 per cent growth in premium incomes.

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