When the government borrows, the question that follows is rarely asked aloud: who lends? A large part of the answer is the life insurance sector. Every year, millions of households across India pay premiums into life insurance policies. That money is reinvested, for decades, in the very securities that finance government expenditure — roads, railways, water supplies, hospitals, defence. The household protecting itself against the loss of its breadwinner is simultaneously, and unknowingly, lending to the sovereign [the Central government]. Life insurers collectively hold close to a quarter of India’s outstanding central government dated securities, based on RBI and IRDAI data — a share that has remained stable even as the total sovereign debt stock expanded by around 40 per cent in three years. This is not a number that appears in budget speeches or parliamentary debates. It is, however, a number that matters.

Patient capital in a volatile world

The stoic and resilient quality of the sector’s sovereign support is as significant as its scale. Life insurers write policies with tenures of twenty, thirty, sometimes forty years. Government securities are the natural habitat of long-duration liabilities — the only asset class that absorbs this scale of funds at matching tenures without distorting the market. Unlike foreign portfolio investors, whose appetite fluctuates with global risk sentiment, insurance companies buy and hold. They do not exit when oil prices rise or when a geopolitical event triggers a reassessment of emerging market exposure. Their participation is counter-cyclical by design — stable precisely when other buyers become unreliable. A steady domestic base of long-horizon holders reduces rollover risk and moderates borrowing costs across the maturity spectrum.

Life insurers buy when others sell, hold when others exit, and reinvest when others pause. That is the structural consequence of writing long-duration promises to millions of policyholders.

The heavyweight within the sector

The sector’s contribution is not evenly distributed. The Life Insurance Corporation of India carries the dominant share — a consequence of its scale, its predominantly participating product mix, and the duration of its in-force book. Its March 2025 regulatory filing with IRDAI (Form L-26) confirms that sovereign paper accounts for nearly 63 per cent of its non-linked policyholder corpus — well above the regulatory minimum, and a direct expression of what long-duration liabilities demand at scale.

LIC holds approximately 19 per cent of all outstanding central government dated securities — a figure confirmed by the RBI’s Public Debt Management Quarterly Report for FY24, the most recently published data. LIC’s IRDAI regulatory filings for March 2025 give the institutional reality in absolute terms: ₹20.2 lakh crore in central government securities alone, and ₹32.3 lakh crore in total government and government-guaranteed securities across all funds. These are not estimates. They are figures LIC files with its regulator every quarter and that any researcher can access on the IRDAI website. This makes LIC the single largest institutional holder of Indian government’s debt.

Private life insurers, with a higher proportion of unit-linked and shorter-tenure products, contribute a smaller fraction today. As they grow and deepen their traditional offerings, their sovereign allocations will follow the same structural logic.

The regulator has already recognised the systemic dimension of this function: IRDAI designates LIC as a Domestic Systemically Important Insurer every year, describing it as an institution whose distress would cause significant dislocation in the financial system. That designation, rightly made on insurance-sector grounds, points toward a wider truth — the dislocation would extend into the sovereign borrowing programme itself.

Insurers in Japan, the United Kingdom, and South Korea are among the largest holders of their respective governments’ long-dated securities, not because regulation mandates it but because their liability profiles demand it. India’s life insurance sector is following the same path.

The fragility within the stability

India’s life insurance penetration stood at 2.7 per cent of GDP in FY25, the third consecutive year of decline from a pandemic-era peak of 3.2 per cent, against a global life average of 3.0 per cent. Three regulatory interventions between 2023 and 2024 — restructured distribution economics, taxation on certain high-value policies, and mandatory product repricing, simultaneously, has compressed new businesses. While each was defensible in isolation, their cumulative effect was adverse. The sector is recovering. But the episode illustrates a risk worth noting: when multiple regulatory actions compress new business at once, the household savings that would otherwise have flowed into the sovereign debt market through insurance, reduce or find shorter-duration homes elsewhere. The sovereign borrowing programme may not notice this in the short term. Over a decade, it would.

The unacknowledged pillar

Banking commands policy attention in proportion to its systemic importance. Insurance, which quietly holds close to a quarter of outstanding central government dated securities, does not.

The case for deeper insurance penetration is most often made in the language of household financial protection — the uninsured family, the inadequate sum assured, a mis-sold product or an unsettled claim. These are legitimate concerns. But there is a parallel case, made in the language of sovereign fiscal stability, that has not been fully articulated in public policy discourse. If the reliability of India’s domestic sovereign funding base is a macroeconomic priority given the scale of annual borrowing requirements, then the depth and health of the life insurance sector remain directly relevant to that priority.

(T.C. Suseel Kumar is a former Managing Director of LIC India. R Sudhakar is a former Chief Investment Officer and Executive Director of LIC India. The views expressed are personal.)

Published – July 08, 2026 08:00 am IST

New business of LIC for December was down more than 41% at ₹13,523.87 crore (₹22,981.28 crore), while for the nine months it was 7.16% higher at ₹1,57,955.95 crore (₹1,47,405.59 crore). File
| Photo Credit: Reuters

New business of life insurers declined almost 22% year on year in December to ₹30,218.71 crore on the back of tight liquidity conditions, the economy projected to grow slower and the GST Council postponing a crucial decision on a widely expected slash in the levy on the premium.

In December 2023, the insurers had reported ₹38,583.13 crore first year premium. The latest numbers follow the November performance when for the first month this fiscal the insurers premium dipped, by nearly 4.5% to ₹25,306.56 crore. One of the contributing factors attributed to the downward trend is the new surrender value norm that came into effect from October.

For the nine months, ended December, the new business increased almost 10% to ₹2,75,086.92 crore (₹2,50,273.75 crore), the business numbers released by the Life Insurance Council showed.

In December, private players fared better than the State-owned, market leader Life Insurance Corporation of India (LIC) clocking a 7% increase in the new business to Rs.16,694.85 crore (₹15,601.85 crore). For the nine months, the first year premium of the private life insurers rose nearly 14% to ₹1,17,130.96 crore (₹1,0,2868.16 crore).

New business of LIC for December was down more than 41% at ₹13,523.87 crore (₹22,981.28 crore), while for the nine months it was 7.16% higher at ₹1,57,955.95 crore (₹1,47,405.59 crore).

The growth moderation for life insurers was not unexpected. Emkay Research recently said for listed private life insurers a host of player-specific issues including discontinuation of some products after the new surrender regulation, slowdown in banca channel and increased competition in some key channels were likely to impacting factors.