News eDaily11 May 2017

India:State-run insurers to argue "maximum return" in tobacco suit

11 May 2017

State-owned insurers will be arguing in court that they should be allowed to invest in diversified tobacco companies like ITC, because their primary aim is to maximise returns on policyholders' money.

“All insurers are going to respond to the court stating that the money invested is not shareholders' money, but that of policyholders, and that it is binding on the insurers to secure and maximise the returns on such investment,” The Economic Times reported, quoting two sources.

This follows informal discussions between the government, insurers and the insurance sector regulator, IRDAI, on a public interest litigation (PIL) in the Bombay High Court.

Last month, seven persons including two members of the Tata Trusts, had filed a PIL suit against the government, insurance sector regulator IRDAI, and five state-run insurance companies for investing in tobacco companies, including ITC and VST Industries. The petition said state insurers should be directed to divest their shareholding in tobacco companies as staying invested in them thwarts the government’s effort to discourage the use of tobacco.

IRDAI is also expected to cite existing guidelines in its response. Insurers need to invest in profit making companies, only then will the investments become an approved investment. “The aim of these investments is to maximise the return to policyholders,” said a senior IRDAI official.

Both the government and IRDAI support the insurers’ view that the investee companies have a diversified portfolio and are not restricted to making tobacco products. ITC, the country’s biggest cigarette maker, has a large portfolio in the fast moving consumer goods sector.

State-run Life Insurance Corporation of India (LIC), the country’s largest institutional investor, holds a 16.29% stake in ITC. The government, through Special Undertaking of Unit Trust of India (SUUTI), holds 9.10%. State-run general insurers together hold about 5% in the company.



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