The Insurance Regulatory and Development Authority (Irda) on Monday said raising investment limit for insurance companies to 30 per cent would be “imprudent” and insurers should be conservative in their approach, not as aggressive as venture capitalists.
“Generally investment, which are proposed, are much higher than what the Insurance Act contemplates and the level of exposure which the draft they (government) had suggested was very high. It is about the level venture capital companies were investing as per Sebi (Securities and Exchange Board of India) norms,” Irda Chairman J Hari Narayan said on the sidelines of an event organised by Federation of Indian Chambers of Commerce and Industry (Ficci).
“So, the question is whether insurance investment must be as aggressive as venture capitalist. I think not. I think insurance companies must be more conservative in their approach,” he said. On the government’s proposal to raise investment limit for Life Insurance Corporation (LIC) to 30 per cent of the paid-up capital in a company, he said, “Government had proposed a certain pattern of investment with certain prudential limit for LIC and called our comments which we have given them.”
The Insurance Act stipulates that an insurance company can invest 10 per cent of the fund or 10 per cent of the company’s stake, whichever is lower.
“I have not seen any (final) notification of the government on that though the government had sent draft notification and we have offered our comments on it. So, I suppose it is under examination,” he said.
Asked if the regulator would permit private sector insurers to invest beyond 10 per cent ceiling if the government notifies increase in investment exposure for LIC to 30 per cent, Hari Narayan said, “No, certainly not. I think it’s very very imprudent.”
“... It is important that insurance investments are governed by prudence ... About government and its role vis-a-vis the investment regulations governance in LIC they are defined in Insurance Act and Life Insurance Act. The government has right to define the insurance parameters. Even if that being so, I would urge that prudence should be hallmark of insurance,” he added.
Explaining rationale behind not increasing investment ceiling, he said, “Number one is once you get to 30 per cent, takeover code kicks in. If you buy 30 per cent then the company will be compelled to purchase another 20 per cent. So, in no time, it will be owing 50 per cent of the company. In which case insurance companies are supposed to own some companies. Then it will be running some steel companies.”
It may be correct in case of venture capital firm, he said, adding, “they are aggressive investors and they are willing to play risk reward game in that manner. Would it be wise thing to do for the insurance companies? The way I think is insurance and pension have to be necessarily very conservative.”
Narayan said the government should look at bringing out a National Health Insurance Scheme by combining existing health insurance schemes to improve the level of insurance coverage. “The government should look at combining the benefits of schemes like the Aarogyasri scheme and the Rashtriya Swasthya Bima Yojna,” he said.
