HDFC Life to turn active investor in companies where it holds a sizeable stake

MUMBAI: HDFC Life, the second largest private insurer, plans to become a more active shareholder in the companies where it holds a sizeable stake. In the short term, this will mean being an active voter. The insurer already has more than 1% stake in 40 listed companies.

"We are coming out with a new policy in the next six months. We are making a beginning by starting to vote in all shareholder proposals," said Amitabh Chaudhry, MD & CEO at HDFC Life Insurance.

The life insurer's assets under management stood at Rs 56,800 crore at the end of the first quarter of FY15, a rise of 37% over the previous year and a three-year compounded annual growth rate of 27%. Over 45% of its assets are in equity.

Private life insurers have been passive investors and often chose not to vote on company resolutions. This was because their holding was relatively small to make a difference. India also does not have a system of class actions by shareholders.

The growing clout of life insurers, however, could make a difference. Unlike mutual funds that churn their portfolios and see two-way flows depending on market conditions, a life company's investments are long-term.

"Ultimately, customers buy a policy because they expect a return. Of the premium that we receive, only 7-7.5% goes toward mortality, capital and other charges the rest is invested on behalf of the policyholder," said Chaudhry, highlighting the need to focus for getting the best returns. He adds that unit-linked products are still the best as long-term government bonds will not yield more than 9%.

The life company's move comes after it wiped out all accumulated losses following a net profit of Rs 280 crore for the first quarter of FY15, resulting in an accumulated surplus of Rs 46 crore.

Internationally, pension funds regularly play the activist role. The largest shareholders in most multinationals are retirement funds while the companies are managed by professionals. In a recent case of institutional shareholder activism, UK-based Children Investment Management Fund (TCI) took Coal India to court over the government's interference in its management. Life Insurance Corporation, too, has been playing an active role as a shareholder, questioning Cairn India's $1.5-billion loan to its parent. Earlier, various mutual funds had written to Maruti, questioning Suzuki Motor's decision to make Maruti Suzuki India's Gujarat unit a wholly owned subsidiary.