Detailed Rationale CRISIL Ratings has converted the provisional rating assigned to Class A Pay Through Certificates (PTCs) issued by India Endowment Policy Trust to a final rating of ‘CRISIL AAA (SO)’.
CRISIL Ratings has now received the final legal / executed documents for this transaction and/or confirmations on completion of pending steps. These executed documents are in line with terms of the transaction when provisional rating was assigned. Hence, CRISIL Ratings has converted the provisional rating/credit opinion to a final rating. The list of documents received is given below.
In total, the Trust has now issued 14 Class A PTCs under this transaction. As of 31-Jul-2022, these PTCs were backed by 149 policies. 13 of the 14 Class A PTCs have been issued in dematerialised form, and 1 Class A PTC has been issued in physical form. As on issuance date, premium payments as per the terms of all underlying policies assigned to the Trust and backing the Class A PTCs have been made to Life Insurance Corporation of India (LIC) on a timely basis.
This securitisation transaction is backed by assigned endowment and money back insurance policies, originally issued by LIC. Such assignments of life insurance policies have been explicitly permitted by a Supreme Court judgement in 2015. The rating is based on the credit profile of LIC, LIC’s claim processing capabilities, the payment mechanism, and soundness of the transaction’s legal structure.
The transaction envisages issuance of Class A PTCs under a Master Trust structure, where the PTCs are backed by insurance proceeds from LIC policies assigned to the trust by original policy holders. Each Class A PTC has been allocated certain assigned policies by the Trust. The assigned insurance policies backing issued Class A PTCs are not fungible. The policies are separately identifed and allocated as backing a specific Class A PTC. Hence, the specified policies backing a certain Class A PTC cannot be cross-utilised to make repayments to any other Class A PTCs. The investor in these PTCs would continue to pay premiums for the specifically allocated insurance policies, which would then be passed on by the trustee from the trust’s bank accounts to the insurer. Either upon maturity of these policies, or in an event of death of the original insured, the claim proceeds received by the trust from LIC would be used to repay the investors. As of Mar-2022, the Trust houses 161 endowment and money back policies, and as of 31-Jul-2022, the Class A PTCs are backed by 149 policies which have been operational for at least 3 years. For policies which are lapsed, no premiums will be payable till the date of encashment.
As per the terms of the Class A PTCs, an event of default on the PTCs would be deemed to have occured in case insurance proceeds that a Class A PTC holder is entitled to under the terms of the underlying policies, are not paid out within 60 days from the last redemption date, which corresponds to the policy maturity date of the policy maturing last. The rating is an indication of the likelihood of insurance proceeds being paid out to the investors in the PTCs as per the terms of the underlying policies in a timely manner, avoiding an event of default.
The Class A PTCs are entitled to receive the paid-up premiums and bonuses declared up to the maturity of the underlying policies. The future bonus payments to be made by LIC are variable and are expected to be declared by LIC on a yearly basis. A lower bonus rate in the future can result in lower value accrual to the Class A PTCs and thus the due amount to the Class A PTCs is linked to future bonuses yet to be declared by LIC. In the event of death of the original insured, the trust would be entitled to receive the insurance proceeds as per the terms of the underlying policy. It may also be noted that as per IRDAI guidelines, for any delays in claim settlement beyond the specified period, LIC is expected to pay penal interest.
Class A PTC investors’ decision(s) to request an early redemption of the PTCs resulting in surrender of the underlying insurance policies by the trustee, any prolonged delays in receipt of death claims from LIC, or a refused or reduced death claim due to unnatural death or other reasons are factors which can impact the corpus available to make payments to investors in Class A PTCs; changes in the amount of repayments to investors on account of such aspects are not covered by the rating. |
Key Rating Drivers & Detailed Description Supporting Factors
These aspects have been factored by CRISIL Ratings in its rating analysis. |
Liquidity: Strong The underlying policies are issued by LIC, which is the largest insurer in India with a strong credit profile and maintains substantial liquid investments. |
Rating Sensitivity factors Upward
Downward
About the Pool As of 31-Jul-2022, the Class A PTCs are backed by 149 endowment and money-back policies issued by Life Insurance Company of India and assigned to India Endowment Policy Trust by the original insured. For these policies, the total paid-up premium and vested bonus already declared (minimum assured value) as of 31-Jul-2022 was INR 10.89 crore.
Counterparty Details
About the Settlor ACESO Endowment Services Private Limited (ACESO) is the settlor in this transaction. The company is a market maker company in India, providing solutions to LIC Policy holders to monetize their policies. ACESO and its associate companies have facilitated in monetizing endowment policies worth over Rs. 250 Million. ACESO has secondary insurance policy management servicing capabilities to administer and manage policies. It was incorporated in the year 2018 and is managed by a group of professionals who have been in this business for nearly 2 decades. ACESO is an associate company of Goldstar Group having multiple business interest in Gold Jewellery, Diamonds, IT solutions, Real estate, Financing through a duly registered non-banking financial company (NBFC), Dravya Finance Pvt Ltd. Key management personnel at ACESO are: Mr. Ketan B Mehta (Promoter Director, Chartered Accountant), Mr Alkesh Shah (Promoter Director, also a Promoter and Vice Chairman of Goldstar Jewellery Ltd) and Mr. Himanshu Ashar (Promoter, Chartered Accountant). |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Indicates the final maturity of the last maturing underlying policy backing a Class A PTC. The Class A PTC maturity is linked to and would vary depending on the tenure of the underlying policies. ^This is the paid-up premium and vested bonuses (minimum assured value) for each Class A PTC as on 31-Jul-2022. As of 31-Jul-2022, the total minimum assured value across Class A PTCs was INR 10.89 crore. The total maturity value that is expected to accrue to the Class A PTC holders over the instrument’s tenure after accounting for paid-up premium, future premium payments, vested bonus already declared and future bonus that could be declared by LIC as per the issuer’s estimates as of 31-Jul-2022 amounted to INR 16.12 crore across Class A PTCs. |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Criteria Details
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