Page 8 - Insurance Times August 2018
P. 8
IRDAI News
IRDA nod for LIC-IDBI Irdai may allow insurers invest in low-risk projects
deal based on merit IRDAI may simplify rules to enable insurance companies to invest in infrastruc-
ture projects. It is considering allowing insurance com-
IRDAI has defended the exemption panies to invest in projects rated EL1 by rating agency
given to LIC Crisil, which assesses risk based on expected losses.
for acquir-
ing up to "The insurance regulator is looking to relax investment
51% stake norms for companies and has held several meetings
in the IDBI with the rating company and other stakeholders," said
a person familiar with the development. "The relaxation will help insurance com-
Bank, saying the decision was based panies increase exposure to the infrastructure sector."
purely on merits of the case.
The regulator currently allows life insurance companies to invest in housing and
Nilesh Sathe, whole-time member of infrastructure bonds that are rated not less than AA. While the total invest-
IRDAI, said LIC had sought an ex- ment in the category should not exceed 15%, the investment of life insurers
emption to invest in the debt-ridden was 8.1% of the total traditional funds in 2016-17. Life insurers had Rs.2 lakh
bank purely as an investment and crore exposure to infrastructure and housing in 2016-17. General insurers had
added that LIC was given at least exposure of 17.17%, with Rs.38,172 crore in infrastructure in 2016-17. Insur-
three such exemptions in the past. ers can invest in real estate investment trusts and infrastructure investment
trusts, with a minimum rating of AA and not exceeding 3% of the fund. Crisil
Sathe said that LIC will bring down has developed a credit rating framework for operational infra projects based
its stake in IDBI Bank to less than 15 on 'expected loss (EL) methodology'.
per cent over a period of time. No
deadline has been set for LIC to com- The rating scale is from EL1 to EL7, with EL1 representing the lowest expected
ply with this norm as it could have loss and EL7 the highest. Ratings are assigned based on the expected loss to be
put pressure on the IDBI Bank stock, incurred over the life of the debt instrument and includes the probability of
he explained. According to Sathe, default and post-default recoveries.
LIC is free to chart its investment
strategy which is not influenced by The rating focusses on the recovery of dues to investors over the life cycle of
the insurance regulator. an infrastructure project by factoring in the possibility of refinance or restruc-
turing and arriving at an effective pricing of the credit risk.
LIC's proposal to invest in IDBI Bank
has been criticised by experts and in- Steering Committee for implementation of Risk Based
vestors who believe that Capital Regime
policyholder's money should not be
used to bail out cash-strapped banks. Further to the Order Ref: IRDAI/ACT/ORD/MISC/220/09/2017 dated 20th Sep-
tember 2017 in respect of formation of Steering Committee for implementa-
LIC has been using money generated tion of Risk Based Capital Regime, the Competent Authority has nominated Shri.
by selling policies to bail out govern- Pravin Kutumbe, Member (Finance and Investment), IRDAI in place of Shri.
ment disinvestment programmes Nilesh Sathe, Member (Life), IRDAI as the Member of the captioned Commit-
and investors are worried about the tee with immediate effect.
impact on their returns.
8 The Insurance Times, August 2018
