Policyholders are likely to get higher returns and bonuses on their traditional life insurance policies as the Government has notified the changes to the investment regulations proposed by the insurance regulator.
This will give more headroom for insurers to invest in higher yielding corporate bonds.
The headroom for investments in the ‘AA’ rated corporate bonds has been created by clubbing the investment limits in government securities along with ‘AAA’ rated corporate bonds.
The composite investment limit for ‘AAA’ rated bonds and government securities has been set at 75 per cent.
Earlier regulations required insurance companies to put 75 per cent of their debt market investments in AAA rated instruments, excluding government securities.
“It will create additional headroom of 12.5 per cent for investing in higher yielding bonds. This will help insurers earn higher interest and we will be able to give better returns and bonuses in traditional plans to policyholders,” said G. V. Nageswara Rao , MD and CEO, IDBI Federal Life Insurance.
For investing in bonds rated ‘A’ and lower, IRDA has capped the limit for life insurers at 5 per cent and 8 per cent for general insurers.
For general insurers, the regulator has lowered the requirement of 75 per cent of investments in ‘AAA’ rated bonds and government securities to 65 per cent.
The regulator has also restricted investments by insurance companies in their promoter companies to 5 per cent.
Earlier, insurers could invest 12.5 per cent of the corpus of unit-linked insurance plans in their promoter companies.
The regulator has allowed insurers to invest a maximum of 20 per cent of the project cost in Special Purpose Vehicles (SPVs) in the infrastructure sector to increase the flow of long-term funds.
The total assets under management of life insurance companies and general insurance companies were at Rs 28-lakh crore and Rs 99,268 crore, respectively, as of March 31, 2012.