Irda Set To Allow Investment In Derivatives

The Insurance Regulatory and Development Authority (Irda) today said it was planning to amend the investment norms for insurers to permit them to invest in derivatives and swap instruments to hedge risks in a falling interest rate regime.

"We are considering derivatives and swaps as part of investments by insurance companies. Perhaps in a month or two, we may amend the investment rules," IRDA chairman N Rangachary said at a seminar organised by the Indian Institute of Foreign Trade. Rangachary declined to elaborate whether derivatives would be part of equity investments or not.

At present, life insurers are required to invest a minimum 50 per cent in central and state government papers, 15 per cent in infrastructure and social sector and the remaining 15 per cent in other instruments including equities.

General insures have to invest 50 per cent in government papers, 10 per cent in infrastructure and social sector, 5 per cent in housing and remaining in equity.

Rangachary, however, allayed fears that despite yields on various instruments were falling, the guaranteed return would be ensured to policyholders as the funds are immediately invested in appropriate instruments.

"If there is a situation when the yields are falling and the guaranteed return scheme is unsustainable, then rates of return will have to be reduced also," he said citing four rate cuts by Life Insurance Corporation in its single-premium Bima Nivesh policy.

Rangachary also said that IRDA was planning to issue the broker and corporate agent guidelines by the end of the month.

He said applications for registration of brokers will be called towards the beginning of October and the first set of licences would be handed out in early November. The insurance advisory committee, comprising representatives from various fields, is slated to meet on September 23 to finalise the guidelines.