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Greater freedom in investments for insurers

IRDA Board has approved of a set of guidelines that will give insurers greater freedom in their investment portfolios.

Apnainsurance.com Research Bureau

05 May 2008

The Insurance Regulatory & Development Authority (IRDA) Board has approved of a set of guidelines that will give insurers greater freedom in their investment portfolios.

As per the new guidelines, insurers can have an exposure of 25% in a single group company, up from 10% earlier. Exposure in a single industry sector also has been increased, moving up from 10% to 25%.

These guidelines will be applicable to all insurance products, traditional as well as unit-linked insurance plans (ULIPs)

An insurer's exposure to a single company's stock has been left unchanged at 10%. This means that an insurer can invest a maximum of 10% of its portfolio in a company, say, in the software services sector. Now, if the insurer is optimistic about the prospects of the group companies of this software services company, it can now invest another 15% in the group companies.

The IRDA has also allowed insurers to invest a maximum of 10% of their investment portfolio in new financial instruments such as mortgage-backed securities (MBS). MBSs are instruments where projected cash flows from mortgages (home loans) are put together and made into saleable instruments.

Investment in these MBSs will be subject to the above-mentioned industry sector norms.

These new regulations are an attempt by the IRDA to give more flexibility to insurers to diversify their portfolios.



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