Life insurance companies are scurrying to meet an immediate redemption pressure as the three-year lock-in period on unit-linked insurance policies (Ulips), put by Insurance Regulatory and Development Authority (Irda) in 2006-07, came to an end in June.

As stock markets are rescaling heights, Ulip investors are cashing in and making part withdrawals, say top industry officials.

“Since part withdrawals are allowed now, there is a possibility that investors would want to secure gains on the units and withdraw. We have factored in the possibility of this at the beginning of the financial year itself,” said managing director of a life insurance company. According to him, in worst-case scenario, there will be a 10-15 per cent partial withdrawals by policyholders who bought Ulips in 2006-07.

According to Irda’s annual report for 2006-07, unit-linked premium collected in the first year was Rs 42,894.7 crore in financial year 2006-07 as compared to only Rs 16,060.67 crore in financial year 2005-06. Total premium collected in 2006-07 by all the life insurers, including LIC, was at Rs 156,075.84 crore for 46,151,566 policies sold.

“We have not seen any significant withdrawals in past one-and-a-half months but there have been some,” agreed Malay Ghosh, president, Reliance Life Insurance. Though he clarified that it is premature to call this as a trend.

Unit-linked policies are where part of the premium paid by the policyholder is invested in various equity funds that the insurers have. The investments will go up or down depending on the stock market performance. Until 2006, there was no lock-in period where policyholders could withdraw or surrender the policy within no time of buying it.

In 2006, to bring stability to the investments in Ulips, Irda came up with a circular putting a 3-year lock-in period for investors where they can neither surrender the policy nor withdraw any amount.

According to analysts, around 10-15 per cent of investors are likely to withdraw this year. Ravi Trivedy, executive director-financial services, KPMG said, “The pressure might not be significant but not more than 10-15 per cent of people would want to withdraw as it is a long-term investment.”

Following the surge in stock markets from 9,500-10,000 levels in 2006-07 to 15,000 levels as on Friday’s close last week, many insurance investors took fancy to Ulips. Some of the chief investment officers and CEOs of life insurance companies, Financial Chronicle spoke to, agreed that there were part redemptions seen by some investors in the past one-and-a-half months though an absolute amount could not be determined.