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Bond FRA Demand Stable Despite Private Insurers' Product Mix Change
14 Sep
Summary
- Private life insurers saw Bond FRA volumes drop 16% in FY27.
- This decline is linked to reduced demand for non-par products.
- Industry experts expect FRA demand to rebound with product mix shifts.
In financial year 2026-27 (FY27), private life insurers have observed a substantial decrease in their participation within the Bond Forward Rate Agreement (Bond FRA) market. Bond FRA volumes for these entities have declined by nearly 16 percent. This trend is closely tied to a reduced allocation towards non-participating (non-par) products in their overall portfolios.
Industry experts, however, believe this moderation in activity does not signify a fundamental downturn in demand for Bond FRAs. They suggest that as insurers adjust their product strategies, potentially shifting back towards guaranteed products, FRA market activity is likely to recover. Currently, attractive yields of around 7 percent or higher make guaranteed savings products appealing, despite some movement towards Unit Linked Insurance Plans (Ulips).
Recent disclosures show a notable drop in the share of non-par products for major private insurers like HDFC Life Insurance and Bajaj Life Insurance between FY25 and FY26. Conversely, the Life Insurance Corporation of India (LIC) has strategically increased its non-par product proportion to 35.1 percent in FY26, partly offsetting the overall decline in private sector FRA market activity. Experts anticipate temporary shifts but no significant long-term decline in FRA demand.
