Irda to ease money mart norm

May let insurers invest up to 50% of total assets.

The domestic money market may get a booster with the Insurance Regulatory and Development Authority (Irda) likely to raise the proportion of investments made by insurance companies in money market instruments.

According to official sources, the regulator may increase the slab for investments to be made by insurance companies in money market instruments to a high of 40-50 per cent of total assets under management from the present 20 per cent.

However, there is a rider. The freedom to invest more in money market instruments will be for those policies which are nearing maturity. The enabling guidelines would be issued shortly, the sources said.

Money market instruments are very short term in nature with less than one year of maturity and ensure maximum liquidity. Such instruments include treasury bills, certificates of deposits, commercial papers, repurchase agreements (repo and reverse repo) and the like.

In its discussions with market participants, the Irda has observed that the restrictive guidelines for insurance companies' investments make it difficult for them to meet the redemption pressure once policies near maturity. Moreover, there are not many investment opportunities available in the market currently.

Meanwhile, the regulator, in pushing forward the second generation of reforms for the insurance sector, has decided to make the solvency ratio risk-based. And to this effect, it is working out a PCA (prompt corrective action) framework for insurers on the lines of the banking sector.

This means the Irda will prescribe solvency ratio-linked criteria, when the promoters decide to infuse additional capital to resurrect their company.

In the regulator's latest review, it has been found that most insurance firms are way above the prescribed solvency ratio of 1.5 per cent.