News: Investment norms for insurance cos may be eased

(BL 15/03/2007) Mumbai - Insurance companies may soon have more flexibility investing in corporate bonds and mortgage-based securities.

The Insurance Regulatory and Development Authority is likely to issue guidelines by the end of the month.

"We are trying to give insurers this flexibility so that they can enjoy higher yields from their investments. We are doing away with the rigidities and the qualifying criteria for investment in these instruments," said a senior IRDA official.

Insurance companies will now be allowed to invest in all highly rated (minimum AA+) corporate issuances. Mortgage-based securities will now be categorised as `approved' investment. Also on the cards are detailed guidelines for investing in equity and debt derivatives.

The report of a Working Group on investment regulations set up by IRDA last year has submitted its report to act as a template.

According to the Insurance Act of 1938, investment could only be made in corporate issuances where interest instalments had been regularly paid (without defaults) for five consecutive years. Mortgage based securities are currently considered `other than approved' investments.

Broadly, life insurance companies can invest 25 per cent of their `investible' funds in government securities and another 25 in other approved securities such as State government paper and oil bonds. Insurers can additionally invest around 20 per cent in approved instruments such as corporate bonds, around 15 per cent in `other than approved instruments' and 15 per cent in infrastructure and social sector.