IRDA mulls allowing life insurers to invest in derivatives
Insurance regulator IRDA is considering allowing life insurers to invest part of policy holders` money in equity derivatives, a move that would allow these firms to hedge the risks emanating from cash markets.
New Delhi: Insurance regulator IRDA is
considering allowing life insurers to invest part of policy
holders` money in equity derivatives, a move that would allow
these firms to hedge the risks emanating from cash markets.
"We are considering to allow life insurers to invest
their equity portfolio in futures and options. The matter is
being examined," Insurance Regulatory and Development
Authority (IRDA) Chairman J Harinarayan told agency.
Equity derivative is a financial contract whose value is
derived from the estimated future price of stocks or stock
indices and is generally used as a hedge or insurance against
the risks associated with the underlying instrument.
When asked what percentage of the equity portfolio would
be invested in derivatives market, Harinarayan said, "We have
not reached to any conclusion on it. We are just examining the
matter and the guideline has not been issued."
Insurance companies will be able to hedge their equity
exposure and protect returns of policyholders if these firms
are allowed to invest in equity derivatives.
Life insurers, at present, are allowed to invest 50 per
cent of their funds in government securities, 15 per cent in
infrastructure-related projects, and the balance 35 per cent
in other-than-approved instruments for traditional policies.
These other-than-approved instruments consist equities,
mutual funds and other money market instruments.
In the unit-linked insurance products, insurers are
allowed to invest their corpus in equities.
Life Insurance Council Secretary General SB Mathur said
that insurance companies are comfortable in dealing with
"Insurers are not uncomfortable in dealing with equity
derivatives. Our instruments are not very complicated. There
is no chance of any undue speculation unless you over expose
yourself ... IRDA has to prescribe guideline on it," Mathur
The Life Insurance Council is a statutory body under the
Insurance Act 1938 and it is the industry association
representing 21 life insurance companies operating in India.