The Insurance Regulatory and Development Authority (Irda) plans to allow life insurers to buy a greater amount of non-AAA corporate debt, which could lead to higher returns for insurance policyholders.
A member of an Irda-instituted committee, looking into the investment guidelines of insurers, said it had decided to include government bonds as part of the AAA-rated investment requirement, enabling insurance firms to take additional exposure to non-AAA-rated securities, including A+ and A papers, by taking board approval.
The panel's move is a part of an exercise to amend the Insurance Act.
The move by the regulator could generate more returns for policy holders as lower the rating on a paper, the higher will be the yield that an investor earns.
It will also widen the investment horizon for insurers and make more funds available to companies that don't have the highest rating, but are credit-worthy.
"We want more money to flow into corporate bond market. The draft guidelines are sent to companies, consultants and other stakeholders for their feedback. It will become a law after the (Insurance) Act is amended," said a senior Irda official.
Insurance companies are now allowed to invest up to 50% in government securities, 15% in infrastructure bonds and 35% in other investment grade corporate bonds and equities. A minimum of 75% of debt instruments must carry triple A rating.
If investments in government bonds become part of the AAA calculations, the maximum permissible investment in non-AAA papers will rise to 25 per 100, assuming that the entire investment is in debt instrument, up from the current 17.50.
"It will give some additional exposure to debt papers," said the chief investment officer of a large life insurance company.
The rating assigned to a bond by credit rating agencies indicates its issuer's degree of creditworthiness and ability to meet financial commitments.
Bonds rated AAA, which is the highest possible rating, are perceived to have little risk of default and offer investors the lowest yields among bonds of comparable maturity.
Life insurance companies had 9,53, 052 crore investment in fixed income instruments as on March-end.
No comments:
Post a Comment