Life insurance firms seem to be betting big on the stock market and are expected to inject over $50 billion (about Rs 2,00,000 crore) in equities by the financial year 2012, nearly a ten-fold jump over the last year’s levels.

The insurance companies are estimated to have injected close to Rs 35,000 crore in the stock market in 2007, up from about Rs 20,000 crore in 2006, according to a Citigroup report.

Further, the analysts at Citigroup said total equity investments by the life insurance companies could rise past $50 billion (about Rs 2,00,000 crore) by the financial year 2012, nearly a ten-fold jump over the financial year 20055-06 figures.

In the current fiscal, Citigroup estimates a total investment of about $15 billion (Rs 60,000 crore). According to the analysts, the huge equity inflow is driven by significant returns being reaped by the insurance firms, which are even higher than the profits being made by mutual funds and direct equity investors.

“Our sense is that the private sector insurance companies have very effectively captured the ‘under-invested’ equity space and long term savings market... effectively, insurance has of late become the biggest conduit for households’ savings to direct their savings into equity,” Citigroup said.

The equity investment through insurance has been luring people with their savings, so much that the share of equity savings of households has shot up from less than two per cent in 2004 to more than six per cent currently. Besides, the insurance companies have been fairly fortunate so far, with their timings with ULIPs (unit linked plans) fetching returns of more than 40 per cent per annum over the past five years.

Thanks to ULIPS
While equity markets have moved up during this period, the MFs and direct equity investors have not been so lucky and continue to be plagued by losses in 1996 and 2000, Citigroup report said.

Besides, the stock market has just gone through a plunge in the past 3 trading sessions that wiped off close to 1,500 points from the Sensex and over $100 billion (Rs 4,02,000 crore) from the market capitalisation of all listed companies. The Citigroup analysts further said that the success of insurance in equity investment could be understood from the fact that in 2004, the share of household savings in equity through insurance was less than one third of equity savings in MFs in the same year. Currently, the equity savings through insurance (majorly ULIPs) have gone up to three times of what they are through MFs.

While the total asset under management of all the mutual fund houses in the country currently stands at about Rs 4,80,000 crore, the assets of life insurance companies are estimated at over Rs 7,00,000 crore.