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Investment norms for insurance firms relaxed

BS Economy Bureau

Insurance Regulatory and Development Authority has relaxed the exposure norms for new entrants and provided greater flexibility for investments in rated securities.

The regulator has now permitted investment in '+A' rated instruments instead of the earlier 'AA'.

Relaxations have also been made in case of investment in debt instruments issued by financial institutions by allowing insurers to park their funds in 'AA' rated debt papers instead of the earlier 'AAA' stipulation.

The Life Insurance Corporation of India had sought greater flexibility for investment in securities, given the paucity of highly rated papers. The earlier investment norms were notified in August last year.

New entrants have been permitted to hold up to 10 per cent investment in a company's capital against the earlier 20 per cent or 10 per cent of general insurers' total assets (10 per cent of the controlled funds for life insurance companies), whichever is less.

For existing insurance companies, the regulator has maintained exposure up to 20 per cent of the subscribed capital of a company or 5 per cent of the controlled funds of a life insurer (10 per cent of a general insurer's assets), whichever is less.

For all insurers, exposure to a group has been reduced from 15 per cent to 10 per cent of its aggregate capital or 10 per cent of general insurers' total assets (10 per cent of the controlled funds for life insurance companies), whichever is less.

However, on consent from the regulator, general insurers can invest up to 15 per cent of their total assets while life insurance companies can invest up to 15 per cent of their controlled funds in a group.

Also, investments in an industrial sector have been reduced to 10 per cent, instead of the earlier 15 per cent of capital employed in all companies of a particular sector.

Investment in equity, including preference share has been capped at 50 per cent of exposure in a company, group or a sector. IRDA has stipulated that investment in group companies of an insurance company's promoter cannot exceed 5 per cent of controlled funds for life insurers and 5 per cent of a general insurer's assets.

While permitting investments in listed scrips, IRDA has stipulated that the minimum volume should be over 10,000 units in all trading session or trading value should exceed Rs 1 million in the last one year.

Though a cap of 15 per cent for investment in securities "other than approved investments" has been maintained, life insurers can now invest more in approved securities. Investment in approved and other securities has a combined limit of 35 per cent.

Similarly, IRDA has permitted non-life insurance companies to invest more freely in approved securities (up to 55 per cent) with a cap of 25 per cent in "other than approved investments".

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