Insurers' exposure cap for reverse repo deals removed

They will be now treated at par with CBLO transactions; 10% investment limit not applicable to the category

The Insurance Regulatory and Development Authority (Irda) has done away with the exposure limit on reverse repo transactions by insurers. In a circular to the chief executives of all insurance companies, Irda said reverse repo transactions in government securities were treated on a par with collateralised borrowing and lending obligation (CBLO) transactions and the 10 per cent investment limit wasn’t applicable to this category.

In December, Irda had brought out a circular to permit repo/reverse repo in corporate bonds, along with government securities — an overall limit of 10 per cent of all funds was given for reverse repo transactions for life insurers (10 per cent limit for repo/reverse repo for general insurers).

However, in representations to the regulator, insurers said limiting reverse repo transactions in government securities to 10 per cent of the funds would restrict the ability to generate optimal returns for policyholders. Therefore, they wanted reverse repo transactions to be treated on a par with CBLO transactions.

“After careful examination of the representations, the authority is of the view insurers may be given the flexibility to invest in reverse repo transactions or CBLO at their discretion, in view of the similar safety features,” Irda said in a circular. It also advised insurers to follow the pattern of investments prescribed by the investment regulations.