Moody’s Reviewing LIC’s Rating for Possible Downgrade

Global agency, Moody’s, is reviewing rating of state-owned Life Insurance Corporation of India (LIC) for possible downgrade over its huge exposure to government bonds.Moody’s has placed the insurance financial strength rating of LIC (Baa2/ stable) under review for possible downgrade.

As per Moody’s, the credit quality of financial institutions, with high levels of domestic sovereign debt holdings, and low geographically diversified revenue and earning sources, is closely linked to the sovereign’s credit strength. Issuers with these characteristics are unlikely to have standalone credit assessments above the sovereign. LIC has Moody’s Baa2 rating with stable outlook, which is higher than Moody’s Baa3 sovereign rating for India. Baa3 represents the lowest investment grade rating.
As per Moody’s, review of LIC reflects Moody’s revised assessment of the linkage between the credit profiles of the sovereigns and financial institutions globally.According to Moody’s review for downgrade reflects LIC’s direct exposure to the Indian sovereign risk in terms of its investment portfolio and business profile.
As of 31 December 2011, 54% or Rs 6 lakh crore or $111 billion of LIC’s total cash and invested assets were in government securities and government guaranteed bonds. Almost 100% of LIC’s net premiums earned are from India. And further more LIC has been increasing its exposure in public sector banks through equity investment, in addition to the purchase of shares in Oil and Natural Gas Corporation (ONGC). As of March 2012 Indian government holds 69.14% stake in ONGC.