Insurance Regulatory and Development Authority (Irda) has made an attempt to lure insurance companies to invest in infrastructure funds. In an exposure draft on investment norms for insurance companies, the insurance regulator has said that total Investment in housing and infrastructure should not be less than 15% of the fund for life insurers and 5% for general insurers.
In a major blow to Life Insurance Corporation, which has asked for the hiking the maximum investment limit in companies from 10% to 20%, Irda has said that the investment limit in companies would be fixed at 10%. It added that insurance firms cannot hold more than 15% of its investment assets in companies belonging to the same group.
The regulator 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 upto 20%. "The above combined exposure of 20% can be further increased by an additional 5%, in debt instruments alone, with the prior approval of Board of Directors. Debt instruments in infrastructure should be restricted to permissible instruments as per the above table with a minimum outstanding tenure of 5 years," said Irda in the draft.
Irda 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," said Irda in the draft.
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% of debt instruments (including Central Government Securities, State Government Securities or Other Approved Securities) - fund wise, in the case 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.
Irda also allowed insurance firms to deal in financial derivatives. However, it has said that only those 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. All other margins or unamortized premium paid, to the extent reflected in the balance sheet of the insurer in accordance with the guidelines, shall be treated as 'Other Investments'.
Overall, Irda said that both life and general insurers could invest in money market instruments, bonds and debentures and asset backed securities with underlying housing loans or having infrastructure assets as underlying as per its regulations.
Industry players said that this showed that Irda was following the finance ministry mandate to give a fillip to infrastructure sector. "The draft norms clearly show that infrastructure is the flavour of the season for the industry. While the regulator has encouraged companies to invest in infrastructure funds, they have also placed a warning that insurers should invest with caution and only look at those funds which have been properly rated," said a senior executive of a life insurance firm.