Insurers get core equity leeway

Insurance companies will have more infrastructure firms in their equity investment portfolio soon.

At a meeting with the finance ministry, the Insurance Regulatory and Development Authority (Irda) has agreed to allow insurance companies to invest in equities of non-dividend-paying infrastructure companies.

Currently, an insurance company is allowed to invest in an infrastructure company only if the latter pays dividend not less than 4 per cent for at least seven out of nine immediately preceding years.

"Relaxation will enable investment in such companies on the basis of project risk assessment and developers' risk-rating," the Irda said.

The Irda is also planning to allow insurance companies to invest in highly-rated mortgage-backed securities and securitised assets with underlying infrastructure assets. The regulator may also allow insurance companies to invest in equity derivatives to hedge risks.

An executive of a public sector insurance company said life insurance companies looked for long-term investments for better asset-liability management. The relaxation in norms would give them more avenues to invest in long-term equity instruments.

"Mortgage-backed securities are like debt papers and give a minimum assured return. This instrument is suitable for general insurance companies, whose funds are short-term in nature," a senior executive of Oriental Insurance Company said.