Insurers can lend equities to generate extra income: IRDA

Insurers are permitted to lend through securities lending and borrowing framework in equities only, the IRDA said

July 15, 2013 3:43 IST | India Infoline News Service
The IRDA (Insurance Regulatory and Development Authority) said that insurers can generate extra yield on the securities held in their custody by lending securities through SLB (securities lending and borrowing) mechanism.

Insurers are permitted to lend through SLB framework in equities only, the IRDA said in a circular on Thursday.

The insurer has to adhere to the client level and participant level position limits prescribed by SEBI and stock exchange while undertaking SLB. Insurer can only lend securities to the maximum extent of 10% quantity in the respective scrips in the respective funds. These prescribed limits should be adhered at all the times, it added.
Securities lent in SLB would not be treated as creating encumbrance, charge, hypothecation or lien on such securities.

Securities lent in SLB would be treated as if the insurer owns such securities and all benefits arising on such securities should be available to the insurer. i.e. the beneficial rights of the insurer should continue as per the SLB frame work.

The lending fee should be accounted for on accrual basis in view of the risk of early repay/recall of securities.

The practices of lend, recall and repay etc should be made keeping the overall interest of policyholders across the funds of the insurer.

Lending securities through SLB in the funds should be made only after approval of the Investment Committee. While considering approval, the Investment Committee should satisfy that lending securities through SLB will be in the interest of the policyholders.

The Board of Insurer should amend its investment policy and put in place adequate risk management framework on SLBs covering circumstances for an early recall & rollover, treatment of corporate actions such as dividend, split, bonus, rights, merger, demerger etc.

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