Insurers push for more hedging tools from regulator to boost strategies

By Bhaskar Dutta and Savio Shetty

 

Indian insurers have held talks with the regulator to propose the introduction of equity options as a hedging tool to boost their risk-management strategies, according to people involved in the discussions.

 

The conversations took place in recent months, the people said, asking not to be named as they are not authorised to speak publicly. The insurers have suggested permission to trade derivatives for products that have exposure to benchmark stock indexes as an initial step, the people said.

 

The Insurance Regulatory and Development Authority of India didn’t respond to a request seeking comment. 

 

Currently, the regulatory norms do not permit insurers to use instruments like options to manage equity-market risks. However, insurers are allowed to use certain derivative tools to hedge risks in fixed-income products. 

 

The move comes as insurers aim to mitigate their risk in equities that have seen a surge in volatility in recent months amid foreign outflows, worries over company earnings growth and sluggish economic growth. The benchmark NSE Nifty 50 Index has fallen about 11 per cent from its September peak.

 

Insurers have sought parity with mutual funds, who have access to equity hedging instruments, the people said. 

 

The move is also guided by insurers’ efforts to shield their solvency norms from potential losses on the equity portfolio. Solvency is a gauge of whether an insurer can fulfill its liabilities.