Mumbai: After a two-year wait, the Insurance Regulatory and Development Authority (Irda) has notified new investment norms that provide more flexibility to insurance companies for parking funds in debt instruments offered by banks and allows more money to flow into initial public offers (IPOs).
At the same time, it has put in place group and individual company exposure norms for unit-linked insurance plans (Ulips) that did not face any such restrictions so far. Exposure to any group of companies has been capped at 25 per cent, while it has been restricted to 10 per cent each for equity and debt instruments for one company.
Investment in fixed deposits is, however, outside the 25 per cent ceiling. In addition, the revised guidelines issued on Friday evening, have stipulated that 5 per cent of the investible corpus can be parked in immovable property.
With Ulips emerging as the largest selling product in a life insurer’s portfolio, these companies have become the biggest qualified domestic institutional investor in recent months. Ulips constitute anywhere between 75 per cent and 90 per cent of the business premium for insurance companies. Of the funds raised through Ulips, more than 90 per cent flows into the stock markets.
To ensure that insurers invest in safe instruments, Irda has specified that at least 75 per cent of debt investments, other than government and other approved securities, should enjoy AAA or an equivalent rating. These norms are also applicable to Ulips.
As part of Irda’s drive to expand the investment basket, mortgage-backed securities (MBS) have been included under the ‘approved investments’ group as part of exposure to the housing sector.
Besides, securities such as bonds and debentures issued by companies and financial institutions that enjoy a minimum AA or an equivalent rating will be part of the ‘approved investments’ group. In case of downgrades, they will be shifted to ‘other investments’ group. Government securities and liquid mutual funds are also ‘approved investments’.
Under the norms, insurers have to invest up to 35 per cent of their funds in approved investments. Of this, at least 15 per cent has to be invested in housing and infrastructure and asset-backed securities with underlying housing loans.
In case of venture capital, Irda has said that life insurers can now invest up to 3 per cent of their investible corpus and general insurers 5 per cent of the investment fund, or 10 per cent of the VC fund size, whichever is lower.
While the exposure limit for financial and banking sector is 25 per cent of the investment assets, Irda has provided flexibility by specifying that investment in fixed deposits, terms-deposits and certificate of deposit of scheduled banks will not be categorised into the group if the bank is not a promoter of the insurance company.
The criterion on the minimum size of the IPO including ‘offer for sale’ for investment by insurers has been reduced to Rs 200 crore from Rs 500 crore earlier. For life insurers, the maximum bid amount for IPO investment has to be less than 10 per cent of the subscribed capital of the investee company or 10 per cent of the fund or assets in case of a general insurer.
Insurance companies had sought relaxations saying that they represent individual investors and should not be treated at par with other institutional players.
At the same time, it has put in place group and individual company exposure norms for unit-linked insurance plans (Ulips) that did not face any such restrictions so far. Exposure to any group of companies has been capped at 25 per cent, while it has been restricted to 10 per cent each for equity and debt instruments for one company.
Investment in fixed deposits is, however, outside the 25 per cent ceiling. In addition, the revised guidelines issued on Friday evening, have stipulated that 5 per cent of the investible corpus can be parked in immovable property.
With Ulips emerging as the largest selling product in a life insurer’s portfolio, these companies have become the biggest qualified domestic institutional investor in recent months. Ulips constitute anywhere between 75 per cent and 90 per cent of the business premium for insurance companies. Of the funds raised through Ulips, more than 90 per cent flows into the stock markets.
To ensure that insurers invest in safe instruments, Irda has specified that at least 75 per cent of debt investments, other than government and other approved securities, should enjoy AAA or an equivalent rating. These norms are also applicable to Ulips.
As part of Irda’s drive to expand the investment basket, mortgage-backed securities (MBS) have been included under the ‘approved investments’ group as part of exposure to the housing sector.
Besides, securities such as bonds and debentures issued by companies and financial institutions that enjoy a minimum AA or an equivalent rating will be part of the ‘approved investments’ group. In case of downgrades, they will be shifted to ‘other investments’ group. Government securities and liquid mutual funds are also ‘approved investments’.
Under the norms, insurers have to invest up to 35 per cent of their funds in approved investments. Of this, at least 15 per cent has to be invested in housing and infrastructure and asset-backed securities with underlying housing loans.
In case of venture capital, Irda has said that life insurers can now invest up to 3 per cent of their investible corpus and general insurers 5 per cent of the investment fund, or 10 per cent of the VC fund size, whichever is lower.
While the exposure limit for financial and banking sector is 25 per cent of the investment assets, Irda has provided flexibility by specifying that investment in fixed deposits, terms-deposits and certificate of deposit of scheduled banks will not be categorised into the group if the bank is not a promoter of the insurance company.
The criterion on the minimum size of the IPO including ‘offer for sale’ for investment by insurers has been reduced to Rs 200 crore from Rs 500 crore earlier. For life insurers, the maximum bid amount for IPO investment has to be less than 10 per cent of the subscribed capital of the investee company or 10 per cent of the fund or assets in case of a general insurer.
Insurance companies had sought relaxations saying that they represent individual investors and should not be treated at par with other institutional players.
Source: Business Standard
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