IRDA highlights infrastructure investments by insurers

In an attempt to lure insurance companies to invest in infrastructure funds, the Insurance Regulatory and Development Authority (IRDA), in its exposure draft on investment norms for insurance companies, noted that total investment in housing and infrastructure should not be less than 15 per cent of the fund for life insurers and 5 per cent for general insurers.

With this, the sector regulator has upturned a major proposal of the country’s insurance behemoth LIC, which asked for hiking the maximum investment limit in companies from 10 to 20 per cent. As IRDA has plainly stated that the investment limit in companies would be fixed at 10 per cent, its exposure draft released on Tuesday also added that insurance firms cannot hold more than 15 per cent of its investment assets in companies belonging to the same group.

IRDA said that industry sector norms would not apply for investments made in ‘infrastructure facility’ sector as defined under IRDA (Registration of Indian Insurance Companies) Regulations, 2000, as amended from time to time. Also, the NIC classification shall not apply to investments made in infrastructure.  Further, the draft said that investments in Infrastructure Debt Fund (IDF), as approved by the authority, on a case-to-case basis shall be reckoned for investments in infrastructure. 

IRDA proposed that insurance company exposure to an infrastructure public limited company for equity and debt investments taken together may be increased up to 20 per cent. “The above combined exposure of 20 per cent can be further increased by an additional 5 per cent, in debt instruments alone, with the prior approval of Board of Directors,” it said. 

It proposed that all investment in assets or instruments, which are capable of being rated as per market practice, shall be made on the basis of credit rating of such assets or instruments. “No investment shall be made in instruments, if such instruments are capable of being rated, but are not rated. The rating should be done by a credit rating agency registered under Sebi (Credit Rating Agencies) Regulations,” IRDA said in the draft.

Further, it said that corporate bonds or debentures rated not less than AA or its equivalent and P1 or equivalent ratings for short term bonds, debentures, certificate of deposit and commercial paper, by a  credit rating agency, registered under Sebi (Credit Rating Agencies) Regulations would be considered as ‘Approved Investments’.

According to the draft, not less than 75 per cent of debt instruments (including Central Government Securities, State Government Securities or Other Approved Securities) - fund wise, in the case of life insurer and Investment Assets in the case of general insurer, shall have a minimum rating of AAA or equivalent rating for long term and P1+ or equivalent for short term instruments.

However, IRDA said that only that premium paid by an insurer for financial derivatives shall be recognised as ‘approved investment’ as reflected as asset position in balance sheet only to the extent the derivative position constitutes a hedge for the underlying investment or portfolio.