IRDAI has relaxed its rules to allow insurers to be exposed to financial and insurance activities up to 30% of their investment assets. The previous cap was 25%.
The change was announced in a circular issued by IRDAI on April 29.
Insurance companies see the easing as a positive measure that will give more flexibility in investments.
Mihir Vora, Senior Director and Chief Investment Officer of Max Life Insurance, said Hindu Business Line, “The limit applies to exposures to equities and fixed income securities. The overall importance of the financial sector has grown as banks and finance companies have grown significantly in size, and new financial segments such as insurance, asset management, brokerage, wealth management and FinTechs have also seen remarkable growth in the equity and fixed income markets. .”
Mr. Rushabh Gandhi, Deputy Managing Director of IndiaFirst Life Insurance Company, noted that the weighting of banking, financial services and insurance in key indices such as Nifty is around 35%.
“So the 25% cap was restrictive,” he said. The relaxation of the cap will allow insurance companies to take on higher exposure in the BFSI sector.
Typically, 70-75% of insurers’ investments are in government securities, government bonds and infrastructure bonds, which are very safe but low-return investments, Kapil Mehta said, co-founder of Securenow. The increased cap gives insurers the flexibility to invest in different assets and improve their long-term returns.
The investment cap on BFSI operations has been raised ahead of the launch of Life Insurance Corporation of India’s initial public offering expected this week.