The Insurance Regulatory and Development Authority of India (IRDAI) has permitted insurers to have exposure to financial and insurance activities up to 30 per cent of their investment assets.

“Accordingly, the limit of 25 per cent of investment assets mentioned in Note No 8 to Reg 9 of IRDAI (Investment) Regulations 2016 stands revised to a limit of 30 per cent of investment assets,” said IRDAI in a circular on Friday.

The move has cheered insurance companies, who believe it will give them more flexibility to invest and could help improve returns.

Positive move

Mihir Vora, Senior Director, Chief Investment Officer, Max Life Insurance, said: “The limit is across equities and fixed income exposures. The overall importance of the financial sector has been increasing as banks and finance companies have grown significantly in size, and newer financial segments like insurance, asset management, broking, wealth management and fintech, have also achieved remarkable growth in the equities and fixed income markets.”

Rushabh Gandhi, Deputy CEO, IndiaFirst Life Insurance Company, noted that the BFSI weightage in key indices such as Nifty is at about 35 per cent.

“Thus, the cap of 25 per cent was restrictive. The relaxation of the cap to 30 per cent by the IRDAI will facilitate insurance companies to take a higher exposure in the BFSI sector. From our point of view, this is a positive and forward-looking development and we welcome the same,” he said.

Typically, 70-75 per cent of investment goes into government securities and state government bonds and infrastructure bonds, which are very safe investments but low yielding, said Kapil Mehta, co-founder, www.securenow.in. The increase gives insurers the flexibility to invest into different assets and improve their returns over the long term.

Ahead of LIC IPO

Significantly, the higher investment cap also comes just ahead of the initial public offering of Life Insurance Corporation of India.

Sources said while this could possibly give more flexibility to insurers to invest in the IPO, it is to be seen how many insurers are able to do so.

“This had been a long-standing demand of the industry,” pointed out an industry source. “How many will use this dispensation for the IPO is to be seen,” he said.

“Insurers who have not used the 25 per cent limit can anyway choose to invest in the IPO. But those who have utilised the limit would need to get board approval to change the investment norms. With just a few days left for the IPO, it is to be seen how many are able to put such approvals in place,” said an insurance executive.

The Centre will offload 3.5 per cent stake in LIC through the IPO, which opens on May 4 and closes on May 9. Up to 50 per cent of the net offer will be available for allocation to Qualified Institutional Buyers, 15 per cent for allocation to non-institutional bidders, and not less than 35 per cent of the net offer will be available for allocation to retail individual bidders.

LIC Chairman MR Kumar has said that he expects strong demand from investors for the issue.