The Hindu Business Line : Insurers may get more investment leeway

Mr C.S. Rao, Chairman of the IRDA, said that the regulator had suggested that insurance companies be allowed to invest in instruments that were until now `u-approved'.

"The IRDA has recommended that specific percentages be prescribed for investment in instruments such as equity derivatives, hedge funds and hybrid securities. Besides, insurance companies may also be allowed to invest in debt instruments that are floated by international agencies such as IFC and ADB."

These are part of the recommendations made by the IRDA on amendments to the Insurance Act.

Currently, insurance companies are not allowed to invest in any of these instruments as they are bound by prudential norms under the Insurance Act.

As per the recommendation, guidelines on investment beyond the mandatory 50 per cent in Government securities will be made as part of the regulation, which the IRDA will be able to prescribe and make changes whenever necessary.

According to industry analysts, equity derivatives are a much-needed instrument for insurance companies.

"In these volatile markets, insurers require equity derivatives to hedge against risk. With most insurance companies having a substantial portfolio of unit linked insurance policies, equity derivatives in particular are required," said an analyst.

Insurance company officials say that globally, even Universities and pension funds partially invest in hedge funds. "Hedge funds target on absolute performance. So, if the Sensex is growing at 20 per cent, their target might be 30 per cent," said an official.

More powers sought

Besides changes in the investment regulation, the IRDA is seeking more regulatory powers.

Mr Rao said: "There is some ambiguity in the Act about the extent to which IRDA can penalise erring insurance companies. We are seeking powers on par with other regulators like the RBI and the SEBI."

In a recent instance, the IRDA fined an insurance company as much as Rs 5 crore for violation of tariff norms, the Chairman said.

The IRDA has also recommended that the system of constituting insurance advisory committees for taking any decisions be abolished.Currently, the regulator has to consult the committee before issuing directions to companies in the event of a violation.

"The system of having a committee is no longer relevant as the IRDA has part-time as well as full-time members and can take decisions on levying penalties or issuing directions to insurers," Mr Rao said.

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