Irate private insurers flay equity investment norms

Irate private insurers flay equity investment norms

Private sector insurers are miffed with Insurance Regulatory and Development Authority (Irda) over proposed changes to investment rules that seek to lower limits on their stake sizes in companies. Irda is keen to lower insurers’ stakes in promoter companies to 5%. But they are free to invest up to 15% in non-promoter companies. Some insurers said Irda lacks clarity and is at odds with industry needs. “The new norms won’t help private insurers on many fronts. We have not been given any flexibility in investment pattern,” said an industry official. The proposed changes, if they become rules, would impact insurers that have 20-30% exposure to promoter companies. Industry observers said bank-promoted insurance companies such as HDFC Life, ICICI Prudential and SBI Life have greater exposure to promoter companies. Insurers are not impressed with the proposed relaxation of the 10% investment limit in a single company either. “Private players are already investing less than 10%. Except Life Insurance Corporation (LIC), none will be interested to hike their equity exposure beyond 10%,” said a chief investment officer of a private life insurance company. Irda’s draft guidelines have also reduced insurers’ equity exposure to any specific sector from 25% to 15% of total equity investments. The proposed norms are expected to lower returns on unit-linked plans or Ulips further. “Irda’s investment guidelines are restrictive in terms of market-linked plans. The sectoral exposure will prevent Ulips from getting market-rate returns,” said another chief investment officer of a private life insurance company. However, insurers welcomed opening up of new avenues for investments like equity derivatives, interest rate swaps, credit default swaps (CDS) in listed corporate bonds and securities lending and borrowing. They said these will help them to better hedge their equity exposure. “The clause that CDS investments should be in only listed corporate bonds will give us some confidence,” said an industry official. Also, in a bid to increase fund flows to infrastructure, the finance ministry had suggested that Irda allow insurers to invest in infrastructure debt funds. Irda obliged by specifying limits of 15% and 5% for life and non-life companies, respectively, to invest in such funds. “As long as there were no mandatory limits for investing in infrastructure debt funds, we didn’t look at such options. We needed some credit enhancement before investing in such avenues,” said an industry official, implying that the new limits will likely spur investments now.