Insurance companies may now be able to acquire up to 15% stake in a single corporate house. The board of the insurance regulator, Insurance Regulatory and Development Authority (Irda), which met recently, has cleared a proposal to increase the investment limit currently capped at 10%.
The move, say industry officials, will have a major impact as it will help insurance companies to take a wider exposure to large corporate groups. “In traditional portfolio, the new norms will help insurance companies to invest higher amounts in some well- managed large groups helping insurance companies improve investment performance,” said Abhijit Gulanikar, chief investment officer, SBI Life.
This will give insurance companies better investment opportunities and improve yields on investments. Traditional portfolio of life insurance has been growing in the last two years, contributing 70-80% of the new sales.
State-run Life Insurance Corporation alone manages assets worth Rs 10 lakh crore in traditional portfolio, which essentially comprises plain term policies, money back policies and endowment plans. It has an investment corpus of about Rs. 3 lakh crore under the unit-linked scheme. Large private sector insurance companies manage around Rs. 20,000 crore under traditional plans.
Some insurance companies have touched the non-promoter group company exposure limit of 10% in corporate houses such as the Tatas. The board of the regulator has also approved a proposal to restrict insurance companies from investing more than 5% of the fund size in their promoter companies. At present, rules allow them to invest up to 12.5% in promoter companies.
“As a matter of good governance, they (insurance companies) can’t invest more than 5% in promoter companies,” said a senior regulatory official. After four years, the insurance regulator is planning to revamp investment rules.
In a bid to encourage investments in infrastructure, the regulator has relaxed rules by allowing insurance companies to invest in special purpose vehicles (SPVs) floated by infra companies. “They can fund up to 20% of the project cost provided the parent company gives a guarantee,” the official said.
But the regulator has proposed certain prudential limits to lower risks: to attract investment, a listed company promoting the SPV must have a minimum net worth Rs 250 crore, while the floor for unlisted firms has been pegged at Rs 500 crore.
The regulator has also relaxed rules on debt investments by including government securities (G-secs) within the ambit of mandatory requirement of 75% in triple-A instruments.
Currently, government bonds are excluded from this basket. Industry officials say this is likely to create a 12.5-13% headroom for additional investments. Although the board of the regulator has cleared these new investment limits, the rules will be notified after consultation with the life council.