It’s a stressed life for LIC from troubles at DHFL, IL&FS, YES Bank and RCap

Radhika Merwin  BL Research Bureau | 
August 26, 2019  

Insurer’s ₹21,500-cr investments downgraded in June quarter

Persisting troubles at DHFL, IL&FS, Anil Ambani-led firms (ADAG) and YES Bank have not only impacted mutual funds, but also insurers with exposure to these stressed companies. The story is no different for India’s largest life insurer, LIC.
According to the public disclosure put out on LIC’s website, the book value of investments downgraded during the June quarter across its life (non-linked), pension and unit-linked portfolio stood at about ₹21,500 crore. These include names such as Reliance Home Finance, Reliance Capital (RCap), DHFL, Reliance Infrastructure (RInfra) and YES Bank.
RInfra, which earlier had an AA- rating, was downgraded to C in June, while RCap’s rating was brought down from AAA and AA+ to BBB in May. DHFL was downgraded to D.
As of June 2019, the cumulative book value of investments held by LIC that had been downgraded by rating agencies stood at about ₹49,000 crore. It would appear that more than 40 per cent of the downgrades happened in the June quarter alone.
Just as in the case of mutual funds, insurers, too, are required to make provisions for debt instruments downgraded by rating agencies.
While a mark-down of these securities can impact the NAV of ULIPs, in case of traditional policies, bonus payments may take some hit in the near term.

Huge investment book

But, to be fair, the downgraded investments for LIC are only a fraction of its huge investment book. As of June, LIC’s investment assets (per balance sheet) stood at over ₹30-lakh crore.
Also, the downgrades many not necessarily amount to default, and sums can be recovered in the future in some cases.

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