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.

Panel favours pension, PF return parity

A parliamentary panel has recommended that subscribers to the New Pension Scheme (NPS) get an assured return of at least 9.5 per cent on their investments, which is the interest rate given by the Employees’ Provident Fund Organisation.

“The committee would recommend that the minimum rate of return on the contributions to the pension fund of employees should not be less than the rate of interest on the Employees Provident Fund Scheme,” said the panel in its recommendations on the Pension Fund Regulatory and Development Authority (PFRDA) Bill, 2011.

Subscribers to the Employees’ Provident Fund Organisation (EPFO) get an annualised interest of 9.5 per cent on their contribution.

“The government should devise a mechanism so that subscribers of the NPS get guaranteed returns on their pension, so that they are not at any disadvantage vis-a-vis other pensioners,” said the standing committee on finance, headed by Yashwant Sinha.

NPS, launched in January 2004, has about 24 lakh subscribers, mostly those employed with the central government.

Twenty-seven states and Union territories and many private individuals have joined the scheme, the total corpus of which now stands at Rs 10,000 crore.

The parliamentary panel has also suggested imposing a 26 per cent cap on foreign direct investment (FDI) in pension programmes, on a par with the insurance sector.

“The committee notes that foreign investment in the pension sector may be capped at 26 per cent,” the panel said.

The PFRDA bill, introduced in the Lok Sabha in March 2011, has no provisions on FDI.

The Pension Fund Regulatory and Development Authority Bill, 2011 will give legal backing to the regulator, allowing it to put in place a robust system for managing retirement savings and providing a framework to promote old age security.

The committee also suggested that the government make concerted efforts to extend the reach of the scheme in both the public and the private sectors.