The Insurance Regulatory and Development Authority (Irda) is considering allowing insurers to trade in gold exchange-traded funds and equity derivatives. It may also allow them to take part in the securities lending and borrowing (SLB) segment.
The aim is to give them more options to hedge risks.
The regulator has set up a committee under R K Nair, member, Irda, to formulate new investment guidelines.
“We have already allowed investment in infrastructure bonds and venture capital funds . The new guidelines will be far more liberal,” Nair said at the Business Standard Insurance Round Table in Mumbai on Thursday evening.
“We are trying to tweak the guidelines and actively considering allowing insurance companies to invest in products like gold exchange-traded funds,” he said.
The regulator was also looking into the demand of insurers for permission to trade in equity derivatives and SLB, he said.
“We are also open to allowing insurers to invest in bonds that are below investment grade. The guidelines will be prepared keeping in mind the forthcoming changes in the insurance sector. The idea is to be ready with the guidelines before the new regulations are in place,” Nair said.
In this year’s Budget, Finance Minister Pranab Mukherjee had said the government would fast-track long-pending financial sector legislation. A slew of Bills, including the Insurance Laws (Amendment) Bill, would be introduced in the coming financial year, he said.
Gold ETFs are listed on stock exchanges and represent ownership of underlying gold assets.
Each unit of gold ETF is generally equivalent to one gram gold.
As insurance is a long-term business, these steps will give insurers more options to hedge short-term and long-term investment risks, thereby protecting policyholders. They will also meet long-term investment requirements of the companies as they have few options at present apart from the 10-year government securities.
According to the present guidelines, in case of unit-linked products, life insurance companies can invest their entire corpus in equities. For traditional products, life insurers are allowed to invest 50 per cent funds in government securities, 35 per cent in other-than-approved instruments, comprising equity, mutual funds and other money market instruments, and the remaining 15 per cent in infrastructure projects.
The total equity investment by the 23 life insurance companies is estimated around Rs 2,70,000 crore. The equity investment of Life Insurance Corporation of India stood at Rs 61,400 crore during 2009-10.
