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The Insurance Regulatory and Development Authority (Irda) is looking to allow insurance companies to deal with equity derivatives. R K Nair, member-finance & investment, Irda, revealed this while speaking at a function here on Thursday. According to him, this could be considered for unit-linked portfolios, in particular.
Irda has already allowed insurers to deal in rupee interest rate derivatives, including Forward Rate Agreements (FRAs), Interest Rate Swaps (IRS) and Exchange Traded Interest Rate Futures. The regulator had earlier said participants could undertake different types of plain vanilla FRAs or IRS. IRS having explicit/implicit option features are prohibited.
Nair said the regulator will also look at Real Estate Investment Trusts (REITs) and if it is viable, they might discuss with markets regulator Security and Exchanges Board of India to see if this could be used as an investment opportunity by insurers. REITs are expected enable easier access to funds for cash-strapped real estate players.
On the risk management and mitigation front, Nair said the regulator was studying the catastrophe or cat bond market to see if such an instrument would have investor appetite in India. Cat bonds are used to fund claims after a catastrophic incident. These bonds help re-insurers transfer the financial risk of a catastrophe in a year to investors.
India's sole re-insurer General Insurance Corporation of India is also actively looking at cat bonds and their viability. Industry players say a combination of Indian rupee and US dollar denomination would be the best-suited model.
