MUMBAI: Life Insurance Corporation of India (LIC) has urged the Reserve Bank of India (RBI) to introduce ultra-long-term government bonds, including 100-year bonds, to better align with its investment needs.
The absence of such bonds poses a challenge for insurers like LIC, which sell whole-life policies requiring stable, long-duration investments.
Siddhartha Mohanty, Managing Director and Chief Executive of LIC, said the insurer regularly engages with the RBI on this matter.
“We invest heavily in government securities, including 20- to 30-year bonds, and have also subscribed to 40-year papers. However, we believe longer-tenure bonds – 50-year or even 100-year – are essential for better asset-liability management,” he told reporters at GCA25.
Globally, several countries, including the US, UK, China, Austria, and Argentina, have issued 100-year bonds to support long-term infrastructure investments and provide insurers and pension funds with stable returns.
However, India has yet to introduce such bonds due to concerns over demand and secondary market liquidity.
In the absence of ultra-long bonds, life insurers currently invest in the longest available government securities and corporate bonds but face reinvestment risks when those securities mature before policy liabilities end.
LIC’s dominant role in G-Sec market
Introducing 100-year bonds could provide insurers with a better tool to match their long-term obligations while also supporting infrastructure financing.
Mohanty highlighted LIC’s dominant role in the G-sec market, subscribing to over a fifth of government bond issuances.
While the RBI has gradually extended bond tenures, he said insurers and pension funds would benefit significantly from a structured introduction of longer-term bonds to address their investment mismatches.
Life insurance companies, particularly LIC, have significant obligations spanning several decades due to the nature of their policies.
Whole life and annuity products require insurers to generate predictable long-term cash flows to meet future payouts.
However, the current bond market in India lacks ultra-long-term instruments that align with the duration of policyholder liabilities.
In the absence of 50-year or 100-year bonds, LIC and other insurers manage duration mismatches by investing in available long-term G-Secs (up to 40 years) and rolling over investments as bonds mature.
LIC is one of the largest institutional investors in government bonds, typically subscribing to over 20 per cent of total issuances. The introduction of ultra-long-term bonds could provide a better mechanism for insurers to align their assets with liabilities.
