The new investment guidelines issued by the Insurance Regulatory & Development Authority (Irda) may have spread cheer among private sector insurers, but it has caught the country’s largest insurer, the Life Insurance Corporation (LIC), off-guard. LIC is also the country’s largest institutional player, with a staggering Rs 7.5 lakh crore of investments.
Finding itself in a quandary after Irda issued its new norms last week, LIC is now planning to approach the ministry of finance and Irda over the implementation of these norms which will have a wide-ranging impact on not only the insurance companies but also the equity and debt markets.
“We are still studying Irda’s new norms and carefully finding out the exact implications of these on our corporation. We will go back to the government and the regulator for a review of certain sections of these regulations,’’ said a senior official of LIC, requesting that he be not named.
The regulations have been gazetted, but that would not preclude a review if it is seen necessary to do so, said the official. Though Irda had consulted LIC while preparing the new set of guidelines, the revamped regulations as announced by it have caught LIC on the wrong foot.
Irda, in its latest notification aimed at removing the differential treatment of provisions applicable to public sector and private sector insurers, has mandated that no insurer can hold more than 10% equity in any company. The norms have also been broadened to include Ulips.
The new guidelines say, “10% of outstanding shares (face value) or 10% of fund size, whichever is lower, can be invested in equity shares of investee company. A sum of 10% of subscribed share capital, free reserves and debentures / bonds of investee company or 10% of fund size, whichever is lower, can be invested in debt instruments of investee company.’’ LIC, the country’s largest institutional player, has major investments in many listed companies and in many companies such investment exceeds 10% .
Earlier, in certain instances, LIC has sought special permission from Irda to invest more than 20% in some companies. The new norms also set out and review exposure criteria for investments in mutual funds, IPOs and debt instruments and also in money market instruments.
These norms give private sector life insurers more freedom to invest in larger avenues. Predictably, they have no problems with the new Irda guidelines. Puneet Nanda, executive vice-president and chief investment officer of ICICI Prudential Life Insurance, India’s largest private sector insurance company, said the new norms have given higher investment flexibility while focusing on better risk management. “This will potentially translate into higher risk adjusted returns for policyholders,’’ he said. The new guidelines will increase the private sector life insurers’ flexibility to invest in initial public offerings further.
On whether the new norms will allow more investments in the stock market, Nanda said: “Not necessarily. The extent of stock investments depends on various factors like customer goals and preference, horizon, risk appetite, product structure and investment strategy of the company.”
Ironically, only recently, the government eased the norms for investments in equity by non-government provident funds, allowing equity investments up to 15%.
Finding itself in a quandary after Irda issued its new norms last week, LIC is now planning to approach the ministry of finance and Irda over the implementation of these norms which will have a wide-ranging impact on not only the insurance companies but also the equity and debt markets.
“We are still studying Irda’s new norms and carefully finding out the exact implications of these on our corporation. We will go back to the government and the regulator for a review of certain sections of these regulations,’’ said a senior official of LIC, requesting that he be not named.
The regulations have been gazetted, but that would not preclude a review if it is seen necessary to do so, said the official. Though Irda had consulted LIC while preparing the new set of guidelines, the revamped regulations as announced by it have caught LIC on the wrong foot.
Irda, in its latest notification aimed at removing the differential treatment of provisions applicable to public sector and private sector insurers, has mandated that no insurer can hold more than 10% equity in any company. The norms have also been broadened to include Ulips.
The new guidelines say, “10% of outstanding shares (face value) or 10% of fund size, whichever is lower, can be invested in equity shares of investee company. A sum of 10% of subscribed share capital, free reserves and debentures / bonds of investee company or 10% of fund size, whichever is lower, can be invested in debt instruments of investee company.’’ LIC, the country’s largest institutional player, has major investments in many listed companies and in many companies such investment exceeds 10% .
Earlier, in certain instances, LIC has sought special permission from Irda to invest more than 20% in some companies. The new norms also set out and review exposure criteria for investments in mutual funds, IPOs and debt instruments and also in money market instruments.
These norms give private sector life insurers more freedom to invest in larger avenues. Predictably, they have no problems with the new Irda guidelines. Puneet Nanda, executive vice-president and chief investment officer of ICICI Prudential Life Insurance, India’s largest private sector insurance company, said the new norms have given higher investment flexibility while focusing on better risk management. “This will potentially translate into higher risk adjusted returns for policyholders,’’ he said. The new guidelines will increase the private sector life insurers’ flexibility to invest in initial public offerings further.
On whether the new norms will allow more investments in the stock market, Nanda said: “Not necessarily. The extent of stock investments depends on various factors like customer goals and preference, horizon, risk appetite, product structure and investment strategy of the company.”
Ironically, only recently, the government eased the norms for investments in equity by non-government provident funds, allowing equity investments up to 15%.
Source: The Financial Express, The Indian Express, Business Standard
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