Regulations
IRDA proposes greater investment freedom to insurers

The draft guidelines of IRDA pertain to participation of insurers in repo and reverse-repo operations in government securities and corporate debts

 
New Delhi: The Insurance Regulatory and Development Authority (IRDA) has came out with three draft guidelines with a view to giving greater freedom to life and non-life insurance companies to participate in money market operations, reports PTI.
 
The draft guidelines pertain to participation of insurers in repo (borrowing) and reverse-repo (lending) operations in government securities and corporate debts, Corporate Default Swaps (CDS) and Securities Lending and Borrowing (SLB) Schemes.
 
IRDA has invited comments of stakeholder within 15 days on these guidelines, which are expected to help insurers earn money from treasury operations.
 
These draft guidelines require the insurers to put in place risk management mechanism and formulate policies for undertaking such investments.
 
As per the draft norms pertaining to repo and reverse operations, IRDA said the exposure of a life insurance company in the reverse-repo (lending) in corporate debt securities should be restricted to 10% of the controlled funds.
 
In case of non-life insurance companies the limit in reverse and reverse-repo operations has been pegged at 10% of investment assets.
 
The tenure of repo transactions, it added, will be for a period of 180 days, with the prior approval of the investment committee of the insurance company.
 
The IRDA further said that insurance companies would be allowed to undertake repo and reverse operations only in AAA- rated corporate debt securities.
 
As a matter of caution, the IRDA has clarified that insurers will not be permitted to undertake such operations in debts of promoter group companies.
 
The boards of insurers, it added, would be required to incorporate necessary guidelines in their Investment Policies.
 
These should pertain to credit rating, exposure and tenor of collaterals.
 
As regards participation of insurers in the SLB operations, the draft norms said insurers would be permitted to "lend only up to 10% of their total equity holdings" in such operations.
 
"Equities lent in SLB would not be treated as if the insurer owned such equities and all benefits arising on such equities shall be available to the insurer i.e. the beneficial rights of the insurer shall continue," it said.
 
The board, the draft added, would have to amend its Investment Policy and put in place adequate Risk Management framework on SLBs.
 
IRDA also proposed that insurers could participate in CDS on Corporate Bonds market as "users" (protection buyers).
 
"The CDS would be permitted as a 'hedge' to manage Credit Risk... mandatory rating for both the issuing company and the Referenced Entity shall be prescribed by the board of the insurers," it said.
 
It added that no CDS transaction could take place between entities of the same promoter group.
 
Besides, it directed that "All CDS transactions shall be reported to the Investment Committee, Audit Committee and to the Board on a Quarterly periodicity".
 

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NPS throws great opportunity for insurers: PFRDA

According to the NPS provisions, an investor can withdraw 60% of his total corpus, which he has saved during his working life and the rest will go to an annuity plan of a life insurer

 
Mumbai: Despite the National Pension System (NPS) throwing up a large opportunity to life insurers, there are not enough players in the system to take advantage of this, the Pension Fund Regulatory and Development Authority (PFRDA) said, reports PTI.
 
"The minimum 40% contribution under the NPS towards annuity is a great opportunity for life insurance players, as they can get captive customers from this system. But we don't have enough players in this arena," PFRDA Chairman Yogesh Agarwal said while addressing a CII summit on insurance.
 
"While 85% of the total market in annuity plan are with Life Insurance Corp of India (LIC), around 10% are with SBI Life Insurance and the remaining are shared among the rest of the players," he said, adding despite the huge opportunity, life insurers are not entering this segment.
 
The new NPS provisions make its mandatory contribution of 40% of the total corpus towards annuity schemes of life insurers, which gives a large captive customer base to these companies, the regulator said.
 
According to the NPS provisions, an investor can withdraw 60% of his total corpus, which he has saved during his working life and the rest will go to an annuity plan of a life insurer.
 
Talking about the revised NPS guidelines, he said the endeavour is to popularise the scheme among private employees and the general public.
 
Total corpus of NPS is around Rs18,000 crore, majority of which is contributed by the public sector employees. To make it popular among private investors, the NPS has come up with revised guidelines, he said.
 
The new NPS guidelines allow the PFRDA to increase the number of fund managers from the present six to an unrestricted number with any financial institution that fits the eligibility criteria to be a fund manager.
 
It also lets the regulator allow fund managers to increase their commission from the present dismal 0.0009% per Rs 10 lakh to an amount which is yet to be finalised by the regulator.
 
"Though there will be some rise in charges for fund managers, it will still be very minimal in comparison to what insurers and mutual funds charge," he said.
 

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COMMENTS

M G WARRIER

4 years ago

Kerala Government has announced introduction of New Pension Scheme (Rechristened as ‘Participatory Pension Scheme’) for its employees joining service from April 1, 2013. CM is lamenting that this will put additional burden on the state exchequer to the extent of 13% of the wage bill in respect of new recruits and savings, if any, will start accruing when they start retiring! For the new recruits, it will be a straight 13% cut on their remuneration package, which, any serving employee will tell, is a little more than what a normal wage revision factors in as rise in total wages. Media has been keeping a learned silence on the issue. NPS was kept outside the purview of VI Pay Commission, although the scheme was under implementation and already there were several central government employees affected by NPS whose wage structure the Commission was reviewing. Some links are missing. Will anyone come out with the real compelling concerns that weighed with GOI and state governments to introduce NPS which in reality is ‘No Pension’ Scheme, even before it has gained legislative legitimacy with appropriate systems for implementation in place?
M G Warrier

SAIL-led consortium to invest $75 million on Afghan mines

The consortium had won the mining rights for three iron ore mines in the war-ravaged country in November last year through an international bidding. The three blocks are said to contain 1.28 billion tonnes of rich reserves

 
New Delhi A SAIL-led consortium of leading Indian steel and mining companies plan to invest $75 million in first phase for the development of Hajigak iron ore mines in Afghanistan, reports PTI.
 
The consortium had won the mining rights for three iron ore mines in the war-ravaged country in November last year through an international bidding. The three blocks are said to contain 1.28 billion tonnes of rich reserves.
 
"In first phase, it will be $75 million and will be met by consortium members. The first phase will be prospecting of the iron ore mines and would take about two and half years time (to complete)," SAIL Chairman CS Verma said, while announcing company's first quarter results.
 
Besides SAIL, other members of the consortium include state-owned NMDC and RINL and private sector steel players -- JSW, JSW Ispat, Jindal Steel and Power, and Monnet Ispat and Energy.
 
SAIL has the maximum 20% stake in the venture, while NMDC and RINL hold 18% each. Private players JSW Steel and JSPL hold 16% each, while JSW Ispat and Monnet have 8% and 4% stakes respectively.
 
The Indian consortium is now looking to sign the final agreements to move ahead with the project development in the war-raved country, Verma said, adding the consortium had a final round of discussions recently with the Afghan government and all issues have been sorted out.
 
Besides developing iron ore mines, the project development plan includes setting up of a 6 million tonnes per annum steel plant, an 800 MW power plant and building necessary infrastructure at a total cost of $10.8 billion.
 
However, construction of steel plant is subject to Afghan government making available linkages for coking coal and limestone.
 
"No, there is no coal block. We have demanded for coal blocks allocation. It is necessary to set up the steel plant," Verma said.
 
After winning the bid in November last year, the consortium had sought Indian government's help in funding the huge total project cost (at $10.8 billion). This is still with the government for approval.
 

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