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Insurers to Get More Freedom in Choosing Investment Avenues

Posted on January 11, 2013 by
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Investment Norms

Insurance Regulatory and Development Authority (IRDA) is planning to give insurance companies more headroom to invest in ‘AA’ rated corporate bonds. This move could boost investments in corporate debt, especially instruments issued by infrastructure companies.

The proposed changes to the investment regulations will allow insurers, both in life and non-life segments, to put up to 15% of their investments in the debt market in ‘AA’ rated corporate instruments.

The headroom for investments in ‘AA’ rated corporate bonds will be created by clubbing the investment limits in government securities along with ‘AAA’ rated corporate bonds. The combined investment limit for these instruments could be set at 75%. At present, insurers had to put 75% of their debt market investments in ‘AAA’ rated instruments excluding government securities.

The IRDA is considering changes to its investment regulations following inter-regulatory meetings under the aegis of the Financial Stability and Development Council (FSDC).

This move would release almost a quarter of the funds available with insurance companies for investment in ‘AA’ rated corporate bonds.

The IRDA is also reducing the minimum tenure for investment in infrastructure bonds to five years from the present ten years.

Insurers may also be allowed to invest in Special Purpose Vehicles (SPVs) in the infrastructure sector to increase the flow of long term funds.

Moreover, as Reserve Bank of India (RBI) has allowed insurers to participate in Credit Default Swaps (CDS) market, insurers will be encouraged to invest in listed corporate bonds and unlisted bonds of infrastructure companies as they can now hedge their risks.

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LIC in No Hurry to Hike Stakes in Listed Firms to 30%

Posted on January 10, 2013 by
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LIC

The government might have gone against the wishes of two regulators Insurance Regulatory and Development Authority (IRDA) and Securities and Exchange Board of India (SEBI) in giving special permission to Life Insurance Corporation of India (LIC) to invest up to 30% in any company, but LIC is in no hurry to hike its stake in any listed firm as a matter of routine.

At present, LIC has assets worth over Rs 13 lakh crores.

As per LIC, the 30% provision is for long term. It also said that it is aware of SEBI’s norms on takeover code where it has to go for an open offer if its holding exceeds 25%. It will be extremely careful in hiking stakes and in case if it is necessary to go beyond 25% it will seek exemptions from the SEBI.

As per LIC, the existing 10% cap is too small. In many of the companies, it has touched that limit because of the historical reasons. It has been investing for 56 years so it has asked for an increase in the cap.

IRDA chairman J. Hari Narayan has recently termed the government’s decision as imprudent. He said that IRDA’s interpretation was that LIC should be treated at par with all other private life insurers. But, government was of the view that there were certain provisions, only applicable to LIC as per LIC Act.

A government official said that if IRDA talks of level playing field, it should be applicable in all the aspects like social commitments, investments and even advertising spend. Why this talk of level playing field only in the case of investment?

The government had allowed LIC to invest up to 30% in a company against the existing norm of 10% as stipulated in the Insurance act, 1999, after law ministry clarified that LIC act, 1956, supersedes the Insurance Act, 1999.

The LIC Act, 1956, says that the insurer can hold up to 25% stake in companies.

However, in 2008, the amended IRDA act restricted the stake insurers could hold in other firms to 10%. A notification issued under the act superseded all other notifications. This meant that LIC also had to pare its stake in companies to 10%.

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IRDA may Relax Investment Norms for Insurers

Posted on August 6, 2012 by
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IRDA-PersistencyInsurance Regulatory and Development Authority (IRDA) may soon relax investment guidelines for insurers, which insurers are demanding for long.

IRDA may allow insurers to invest in lower rated bonds. At present insurers are allowed to invest only in AAA rated bonds.

IRDA also may allow insurers to trade in Derivative Instruments.

Insurance industry has suggested host of steps to improve the functioning of the industry from simplification of products and claims to level playing field in terms of Tax Treatment of Financial Products.

Industry has sought simplification of life insurance products and focus on Protection and Long-Term Savings.

Insurers have also demanded to continue the tax benefits for insurance products.

Insurers have also sought speeding up the reforms in Non-Life Insurance Space, better coordination between various ministries for Non-Life and Health Products, allowing space for innovations, streamlined process of regulatory changes through discussions and regulatory impact assessment.

As the economy, per capita income and disposable incomes grow, the insurance industry is also expected to grow as a channel for Long Term Saving. However, key players need to work together to create a conducive environment for a sustainable growth.

Industry needs to innovate, simplify products and build trust among customers through Effective Distribution and Claim’s Management and the regulator needs to introduce changes based on Regulatory Impact Assessment, thereby giving the industry time to adjust to the changed environment, along with initiatives to drive Insurance Awareness Program. And government may also speed up Reforms to drive growth.

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LIC Not in Hurry to Bring Down its Holdings in Unlisted Firms

Posted on April 26, 2012 by
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LICCountry’s largest institutional investor Life Insurance Corporation of India (LIC) is not in hurry to bring down its holdings in unlisted companies to align with 10% equity exposure cap, mandated by Insurance Regulatory and Development Authority (IRDA).

 

As per LIC it want to bring down its stake in unlisted companies but it can’t happen overnight as there are practical challenges involved in it.

 

LIC has exceeded investment limit in 57 unlisted firms. And to bring down its holdings in these firms Firstly it has to arrive at a valuation, and then look for a suitor. And all these procedures are not easy and take a lot of time.

 

LIC can invest up to 10% of capital employed by the investee company or 10% of the fund size in a corporate entity, whichever is lower. The capital employed includes share capital, free reserves and debentures and bonds.

 

LIC has also requested IRDA to tweak some debt investment norms to allow it some flexibility.  LIC has asked IRDA to allow more investment in AA-rated papers or else it might impact yields.

 

As per IRDA’s norms insurers are required to invest 75% of their debt investments in AAA rated papers.

 

As per LIC more than half of their debt instruments are in government securities, which are more secure than AAA rated papers. It has 15-20% in equities and another 10% in policy loans. And if it had to invest remaining amount in AAA rated papers to maintain 75% limit, then it will mean low returns.

 

During 2012-13 LIC is planning to invest Rs 2.25 lakh crore and of which it is expecting to invest Rs 60,000 crore in equities. During FY’12 LIC’s total investments stood at Rs 2 lakh crore, of which Rs 1.5 lakh crore were invested in debt while Rs 50,000 crore were invested in equities.  During FY’11 LIC’s total investments stood at Rs 1.96 lakh crore.

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LIC can bring down its stake in companies to 10% at its own pace: says IRDA

Posted on April 12, 2012 by
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licThough Insurance Regulatory and Development Authority (IRDA) has turned down the request of Life Insurance Corporation of India (LIC) to allow it to have higher stake in a company than permitted norms, but IRDA has permitted, that it can do it so at its own pace.

 

IRDA said that LIC need not bring down its current stake in various companies below 10% in a hurry that means IRDA has not set any timeframe for it. IRDA didn’t want to put any pressure on LIC to adhere to norms because it can have adverse impact on market and investors.

 

The issue has come into light in February 2012, when LIC invested Rs 12,000 crore in the auction of Oil and Natural Gas Corporation (ONGC).

 

At present insurers are not allowed to have more than 10% stake in a company.

 

LIC has over 10% stake in many companies including State Bank of India (SBI), TATA Steel, MTNL and ITC.

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IRDA Overlooking LIC’s Breach of Investment Norms

Posted on April 9, 2012 by
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LICInsurance Regulatory and Development Authority (IRDA) has rejected country’s largest insurer Life Insurance Corporation of India’s (LIC) demand to increase the equity investment cap in a single company, but still it has remained indifferent in some cases where LIC has breached limit.

 

IRDA has said that rules can’t be eased for a company when a dozen more are in the field. And if it is allowed on the industry level, it could worsen the risk profile of insurers.

 

At present insurers can’t own more than 10% in a company or 10% of its networth.

 

Recently in a bid to help government in capitalizing PSU banks and to bail out government’s disinvestment target, LIC has picked up preferential shares in more than dozens of PSU banks. Following which LIC has ended up breaching the 10% cap on holding.

 

In reply LIC has said that, whenever there is a need it has informed IRDA about its investments, it also said that it has large portfolio hence, its needs are different and are not comparable to others in the industry.

 

In last quarter of FY’12 LIC has invested Rs 12,000 crore in Oil and Natural Gas Corporation (ONGC) auction and another Rs 8,000 crore in PSU banks. After this purchase, LIC’s stake in ONGC stands at over 9%.

 

LIC has bought shares of Punjab National Bank (PNB) of Rs 1,574 crore through preferential route which will increase its stake in PNB beyond 10% cap. At the end of December 2011 LIC held 8.54% stake in PNB. Similarly, LIC infused Rs 1,037 crore in Bank Of India (BOI), Rs 650 crore in Union Bank of India, Rs 302 crore in Indian Overseas Bank and Rs 148 crore in United Bank of India.

 

But in some cases such as in TATA Steel where it has breached the limit there has been no direction from the regulator, LIC was neither asked to bring down its holding to 10% nor it could it retain whatever it owned. The indecision has left the corporate governance issue unresolved.

 

However, policyholders and investors criticized government for using LIC as a tool to fill its revenue gap. As per investors insurers should adhere to rules and IRDA should be given powers to take penal action beyond monitory fine, as it has no meaning.

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