Amtek fallout: Irda seeks corp bond investment from insurers

After being asked by regulator Irda to submit their investments in corporate bonds, insurers have said they will be more cautious in exposing themselves to such instruments going forward.
Following the crisis in Amtek Auto, wherein JP Morgan AMC had to restrict redemption of its two funds which have higher exposure to the auto component maker's debt instruments, both Sebi and Irda have sought information from AMCs and insurers, respectively especially about their investments from Ulip funds.
It can be noted that over the past year, many listed companies' bond ratings have suffered with steep downgrades. Those impacted include Amtek Auto, Jindal Steel & Power, Jaiprakash Associates, Bhushan Steel and Bhushan Power & Steel etc, according to rating agencies.

One life insurer and a non-life insurer confirmed to PTI that they have received some communication from the regulator Irda seeking clarifications on their corporate bond investments.
Under Irda rules, a life insurer has to park at least 30 per cent of its Ulip assets in G-secs, 5 per cent in housing and infrastructure in AA or above rated bonds, and up to 25 per cent in other instruments. They can invest only 5 per cent of its overall investible surplus in debt paper rated A or below.
The Irda rules also makes it mandatory that if the total investible assets of a life insurer are under Rs 50,000 crore, it can invest up to 10 per cent in a single company and if its above Rs 50,000 crore it can invest up to 12 per cent in a single firm's securities.

The checks by Sebi and Irda began after redemption crisis in two fixed-income schemes of JP Morgan AMC, following a sharp downgrade of the Amtek Auto bonds which offered a coupon of 10.25 per cent. These bonds were due for redemption on September 20, but were not fully repaid.
Private sector life insurer SBI Life today told PTI that it has invested close to Rs 11,000 crore in corporate bonds.
"As of now our overall AUM stands at Rs 77,000 crore and 13-14 per cent of that are invested in corporate bonds and 85-90 per cent of them are only AAA-plus rated companies," SBI Life managing director and chief executive Arijit Basu.