IRDA allows insurers to earn extra yield on equities via SLB

Giving more freedom to insurers in securities market operations, regulator IRDA has allowed them to lend up to 10 per cent of their equity holding in a particular entity to earn extra yield on the portfolios.

 

Insurers, according to an Insurance Regulatory and Development Authority (IRDA) circular, can now participate in Securities Lending and Borrowing (SLB) subject to certain conditions.

 

"Insurers are permitted to lend through SLB framework in equities only ... Insurers can only lend securities to the maximum extent of 10% quantity in the respective scrips in the respective funds," it said.

 

Under the SLB scheme, those having securities can lend their securities for consideration and those requiring securities can borrow the same. In securities lending, a legal title of a security is temporarily transfered from the lender to the borrower. The tenure for SLB transactions is up to 12 months.

 

As per the BSE, securities lending is especially attractive for large large institutional holders of securities, as it is an easy way of generating income to offset custody fees, and requires little involvement or time.

 

Last August, IRDA had issued draft guidelines in this regard for comments and suggestions from various stakeholders including life insurers, general insurers and other entities.

 

"After examination of the comments received, it is observed that insurers can generate extra yield on the securities held in their custody by lending securities through SLB mechanism," the regulator said.

 

There are over two dozen life and general insurers, besides LIC and four state-owned general insurance companies, in the country. The industry has been seeking greater investment freedom.

 

IRDA further said that securities lent in the SLB would be treated as if the insurer owns such securities and all benefits arising on such securities shall be available to the insurance company.

 

"The practices of lend, recall and repay, etc shall be made keeping the overall interest of policyholders across the funds for the insurer," it said, adding, the Board of the insurers should amend its investment policy and put in place adequate risk management framework.