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LIC will soon stop selling Jeevan Akshay, one of its top cash cows

Wednesday, November 29, 2017, 13:51
This news item was posted in Business category and has 0 Comments so far.

MUMBAI: Life Insurance Corporation of India will stop selling the popular annuity product Jeevan Akshay from next month, as falling interest rates have made it impossible to sustain returns at the current level. It may, however, reintroduce the plan by offering a lower rate, a senior executive said. Jeevan Akshay had been a cash cow for the state-run insurer, generating close to a fourth of its new business income. The single-premium plan contributed Rs 10,000 crore to LIC’s revenue so far this financial year and Rs 22,000 crore for the past two years. The scheme that offers a regular income is currently paying a yield of 7.5 per cent. Also Read: ?LIC minting money: 15 stocks it holds surged up to 320% this year LIC has seen massive inflows into this product, which offers returns that are half a percentage points more than the 10-year government securities. “We have decided to discontinue with the high interest rate of 7.5 per cent from December 1,” said the senior LIC executive. The executive said it would file for a revised plan having a lower interest rate of 6-6.5 per cent with the Insurance Regulator and Development Authority of India. Single-premium guaranteed products help insurers boost revenue. But with the yield on the 10-year government bond at around 7.05 per cent, offering a high return has become difficult since the insurer also incurs costs such as on policy administration and acquisition. Insurance products that were launched at a time when interest rate were high have been either withdrawn or refiled at lower rates. Insurers had to also revise rates since demonetisation as banks, flushed with deposits, cut interest rates. Companies submit revised assumptions to the regulator while filing for the product.Return on traditional insurance products are broadly linked to 10-year government bonds.

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