Globally, insurers have small holding in tobacco firms, but some moving away

With the investments of Indian state-owned insurance companies in tobacco firm ITC coming under legal scrutiny, a study of the global scenario shows that it is fairly common for insurance companies to invest in tobacco firms.Insurance companies benefit from the tobacco industry in two ways ­ through returns generated on their investment in tobacco stocks, and by charging higher premium on the insurance of smokers. However, in most cases the insurance companies are privately owned with a clear profit motive, and their stakes are limited to 2-3% of the total shareholding of the tobacco firms.

ITC is probably a unique case in which the LIC, the largest state-owned h insurance company, holds a significant stake of 16%. Incidentally, despite tobacco being a `legal' product, several sovereign wealth funds have exited from tobacco stocks in the past few years even at the cost of foregoing superior returns. Funds in Norway, New Zealand, Australia and five US states have chosen to divest their holdings in tobacco firms. Factors such as the disclosure of holding requirements, ethical investing, and reputation management are influencing the recent practice of tobacco divestments. While such divestment is still very rare in case of global insurance companies, French insurer Axa decided to exit its tobacco investments last year, pointing to the idea gaining ground.