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Radhika Menon

Mumbai , Oct. 29

Insurance companies can invest in special economic zones (SEZs), particularly in infrastructure such as roads and power plants and other facilities.

Mr C.S. Rao, Chairman of the Insurance Regulatory and Development Authority (IRDA), said that the regulator would not make an exception for SEZs.

"As of now, we see no major issue with respect to SEZs. Depending on the activity that is being pursued, we will allow investment by insurance companies," he told Business Line.

"If a power plant is being set up and the tenure of investment is 15-20 years, it would qualify for infrastructure investment."

According to insurance regulation, infrastructure includes roads, power plants, irrigation and housing.

While it does not include SEZs, Mr Rao said that applications would be scanned based on the nature of activity.

Insurance companies are still not clear about investments in SEZs. At a recent press conference, Mr T.S. Vijayan, Chairman of LIC, said that IRDA had not been clear about whether SEZ investment would fall into the approved category.

Insurance companies can invest up to 15 per cent of their total investments in infrastructure.

LIC has invested Rs 59,625 crore in the infrastructure and social sectors as on March 31, 2006.

The Reserve Bank of India has expressed reservations on investments in SEZs.

It has also capped investment by banks in SEZs by categorising them as real estate.

For setting up an insurance company in an SEZ, extant requirements would apply, Mr Rao said.

A new company will have to begin with a minimum capital base of Rs 100 crore and the FDI restriction of 26 per cent will hold.

Mr Rao has returned from a meeting in China of the International Association of Insurance Supervisors, which represents regulators and supervisors of more than 130 countries.

He is one of the 15 executive committee members and is involved in drafting norms for the insurance sector.

At the meeting, there was a discussion on when the insurance industry in India will shift from the current solvency norms to a risk-based capital approach, as in banks.

"But that is still some time away as we have to see how companies perform after opening up of the sector. For such structural adjustments we will have to wait. So, for now, we stay with the solvency formula," he said.

Some African countries have expressed interest in adopting the India model for micro-insurance, Mr Rao said. "We are the only country to come out with specific regulation for micro-insurance."

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