Irdai working group recommends easing investment rules for insurers

15 Jun 2022 , 03:19 PM

A panel formed to recommend changes to the general insurance industry has recommended that insurers relax investment rules, such as allowing insurers to invest in bank’s Additional Tier-1 (AT-1) bonds, removing the requirement that equity investments only be made in dividend-paying companies, and increasing bank investments in infrastructure.

According to an official, the panel’s report has been sent to the Insurance Regulatory and Development Authority of India (Irdai) for assessment. Irdai officials and non-life insurance company CEOs were on the panel.

Except in circumstances where the bank is a promoter entity of the insurer, the committee has proposed enabling insurers to invest in AT-1 perpetual bonds of banks that have issued dividends in the previous two years. AT-1 bonds provide a better return to investors, but insurance firms are now prohibited from investing in them.

Anjan Dey, chairman and managing director (CMD) of Oriental Insurance; Ritesh Kumar, MD of HDFC ERGO General Insurance; Anuj Gulati, MD of Care Health Insurance; V. Suryanarayanan, MD of Cholamandalam MS General Insurance; A. Ramana Rao, general manager of Irdai; and Y. Srinivasa Rao, deputy general manager of Irdai were among the members of the committee.

According to the committee’s recommendations reviewed by Business Standard, investments in long-term bonds for ‘Infrastructure and Affordable Housing’ should be removed from the overall limit of investment in banking, financial services, and insurance (BFSI), as infrastructure investments have no industry limit under prudential exposure norms.

It also proposes abolishing the requirement that stock investments be made solely in firms with strong dividend yields. The panel mentioned examples of corporations that pay substantial dividends yet have consistently underperformed benchmark indexes for years.

Allowing insurance firms to participate in businesses that do not pay dividends but have strong development potential will assist them in gaining institutional support.