The finance ministry has suggested IRDA (Insurance and Regulatory Development) to double insurance companies’ equity exposure limit in a company from 10% to 20%, the according to media reports.
If the insurance regulator approves the suggestion to double insurers’ equity play limit, the risk of the insurance companies will increase. The finance ministry has been recommending IRDA to raise the stake an insurance firm can own in a company to 20% from 10%, the reports added.
From a long time, country’s largest insurer Life Insurance Corporation of India (LIC) has been demanding such an increase, but IRDA had in the past opposed the move. According to the insurance regulator, the demand, if approved by IRDA, will increase the risk for LIC. IRDA has formed a committee to study the issue. The regulator said that increasing the insurers' equity play limit from 10% to 20% would increase their exposure to risk.
The focus of the insurer is not to expose it to risk, but provide stable return. If policyholders are looking for only equity-linked return, they will go to mutual funds. Though IRDA has been reluctant to doubling the equity exposure limit, there could be a compromise, with it raising the limit to 15%, with some riders, the media reports said.