Insurance looking for safety

Insurers cannot have an exposure of more than 5 per cent of their investment in promoter group companies under the new investment norms announced by the insurance regulator. Insurance companies earlier were allowed to invest a maximum of 5 per cent of their funds from non-unit linked life, pension and annuity policies, while they could invest a maximum of 12.5 per cent of their earnings from unit-linked policies. Under the new norms, the higher exposure limit in promoter group companies for Ulip funds has been brought on a par with traditional policies at 5 per cent. Besides, the regulator (IRDA) has also clarified that insurance companies cannot make any investment in-group companies either through private placement of equities or in unlisted debt papers of such entities. This is truly one of the most important changes that the insurance regulator has sought to bring in its new investment norms for insurers. The insurance regulator had brought this change to ensure more transparency and safety for policyholders. The other changes are however, mostly clarifications of ambiguities in some words that lead to different interpretations to some clauses. The existing investment regulations require insurers to invest a minimum of 25 per cent of the funds under their non-unit linked business in government securities. As it was not clearly spelt out whether it would be central government or state government securities, a number of insurers misinterpreted the term government securities to mean state government securities as well. They invested a large part of their funds in higher yielding state government securities and in the process brought down their investment in low-yielding central government securities below the 25-per-cent-mark. Now the regulator has made it clear that insurers must invest at least 25 per cent of their total funds in central government securities. Moreover, at least 75 per cent of an insurer’s investment in debt instruments, including central government securities, must have a sovereign rating or a long-term credit rating of AAA or equivalent or a short-term credit rating of P1+ for short-term. Interestingly, the new investment norm has done away with the 10 per cent sectoral cap pertaining to investment in the infrastructure sector by insurance companies. Insurers were asked to give their feedback to the regulator on the new norms by Friday. The new investment norms assume significance as life insurers are struggling hard after the change in regulations for unit-linked life insurance policies last September. Since then, insurers are increasingly leaning to traditional products to rev up their policy sales.