KARACHI, Sept 10: The State Life Insurance Corporation (SLIC) is negotiating with the Debt Office of Finance Ministry for launching of a 20-year maturity government investment bond. “SLIC’s liabilities are long-term and a 20-year bond with attractive rate of return would be a good proposition for investment,” a well-placed authoritative source in the corporation told Dawn.

Like many other institutions of the country, State Life also invested substantially in the stock exchange during last few years and reaped rich dividends and capital gains. In the year 2004, the corporation’s net investment income including capital gains increased to Rs13.56 billion, showing an increase of 33 per cent in a year.

This was the time when the bank interest rates touched bottom low in the last two to three years, but SLIC managed to give attractive bonuses as it allocated Rs5.5 billion for its policyholders in the 2004.

Now that the bank interest rates have started going up, the stock exchange remained unpredictable after mid-March disaster, SLIC finds one and two year fixed deposits in banks attractive proposition as these promise a return of 10 per cent plus.

“Currently, the return on eight year bond is around 9.40 per cent whereas the return on a 10-year bond is 9.50 per cent,” the SLIC executive pointed out while stating that rate of return on six-month and one year treasury bills were only slightly lower at 8.1 per cent and 8.7 per cent. “No wonder, then the yield curve which normally should be a rising curve is presently almost flat,” he said.

SLIC’s share in the life insurance business is 80 per cent while that of private sector represented by four relatively young companies command 20 per cent share with life fund of about Rs15 billion.

“In next 10 years we will have 50 per cent market share of life insurance business”, claimed a private operator of life insurance business who said that private life insurance business was allowed in 1994 and within short span of 10 years we have captured 20 per cent of the market.

He said that a long-term government bond would be needed at a certain given point of time but now at present “we are comfortable with making quick adjustments in the short-term investment portfolios.”

“We offer much more facilities and return to the policyholders than the SLIC,” he claimed while asserting that private life insurance business was transparent and attractive that keeps the policyholders informed of the fund build up and update on unit value.

“Never forget that SLIC build up its empire on the foundation of private life insurance business before 1972 nationalization,” he said while arguing that SLIC is a merger of many private life insurance companies. Quite a big chunk of SLIC’s real estate belongs to the private companies. “Titles of many of these properties could not be changed to SLIC’s name because of legal issues.”

State Life has shown an increase of 56.3 per cent from real estate portfolio to Rs46.15 million in 2004 from Rs29.53 million a year ago.

More than Rs80 billion of SLIC’s funds are invested in government securities while about Rs1.5 billion is invested in the fixed income securities according to the annual report for the year 2004. About Rs11.38 million had been invested in the shares of listed companies and were the source of major income. SLIC is now considering launch of investment linked policies as is being done by the private life insurance operators. The corporation has already announced the launch of a Shariah-compliant insurance product this year following the announcement of rules for Takaful by the Securities and Exchange Commission of Pakistan.

Negotiations are underway between the Sindh government and the SLIC on management of a pension fund.