IRDAI (INVESTMENT) (FIFTH AMENDMENT) REGULATIONS ,2013

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IRDAI (INVESTMENT) (FIFTH AMENDMENT) REGULATIONS ,2013

 

Dear Friends,

As you are aware that every insurance company carrying insurance or reinsurance business in India shall invest and keep invested his total assets according to the provisions of Section 27 & 27A of the Insurance Act, 1938 as amended the Insurance Laws(Amendment) Act, 2015 read with IRDAI( Investment) Regulations, 2000 as amended by IRDAI( Investment)(Fourth Amendment) Regulations, 2008 and IRDAI( Investment ) (Fifth Amendment) Regulations, 2013.

One of the main sources of income of an insurance company are premium and interest, dividend received from investment. When selecting instruments of investment , the insurance companies take into consideration the Asset and Liability Management ( ALM) , the Security of Investment , an appropriate divarication and insurer’s foreseeable needs for cash. So it is utmost important for an insurance company to invest funds of policyholders and wisely.

The “Investment” is one of the Core Activities of an insurance company and hence it cannot be outsourcing. The Board of Directors are responsible for formulating Investment Policy of an insurance company and same can be delegated to “ Committee of Insurance”, consisting highly decorated officers of the company.

In this article , we are going to discuss important provisions of the Insurance Act,1938 and the IRDAI( Investment)(Fifth Amendment) Regulations ,2013.

LET’S CONSIDER PROVISIONS OF INSURANCE ACT, 1938 ON GOVERNING INVESTMENT;

FOR SECTIONS 10(2AA) ,27, 27A, 27B, 27C AND 27D OF THE INSURANCE ACT, THE FOLLOWING SECTIONS SHALL BE SUBSTITUTED, NAMELY:—

SECTION 10(2AA)- Where the insurer carries on the business of insurance, all receipts due in respect of each sub-class of such insurance business shall be carried to and shall form a separate fund, the assets of which shall be kept separate and distinct from other assets of the insurer and every insurer shall submit to the Authority the necessary details of such funds as may be required by the Authority from time to time and such funds shall not be applied directly or indirectly, save as expressly permitted under this Act or regulations made thereunder.

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SCETION 27.

(1) Every insurer shall invest and at all times keep invested assets equivalent to not less than the sum of—

(a) the amount of his liabilities to holders of life insurance policies in India on account of matured claims, and

(b) the amount required to meet the liability on policies of life insurance maturing for payment in India, less—

(i) the amount of premiums which have fallen due to the insurer on such policies but have not been paid and the days of grace for payment of which have not expired, and

(ii) any amount due to the insurer for loans granted on and within the surrender values of policies of life insurance maturing for payment in India issued by him or by an insurer whose business he has acquired and in respect of which he has assumed liability in the following manner, namely:— (a) twenty-five per cent. of the said sum in Government securities, a further sum equal to not less than twenty-five per cent. of the said sum in Government securities or other approved securities; and (b) the balance in any of the approved investments, as may be specified by the regulations subject to the limitations, conditions and restrictions specified therein.

(2) In the case of an insurer carrying on general insurance business, twenty(20%) per cent. of the assets in Government Securities, a further sum equal to not less than ten(10%) per cent. of the assets in Government Securities or other approved securities and the balance in any other investment in accordance with the regulations of the Authority and subject to such limitations, conditions and restrictions as may be specified by the Authority in this regard. Explanation.—In this section, the term “assets” means all the assets of insurer at their carrying value but does not include any assets specifically held against any fund or portion thereof in respect of which the Authority is satisfied that such fund or portion thereof, as the case may be, is regulated by the law of any country outside India or miscellaneous expenditure or in respect of which the Authority is satisfied that it would not be in the interest of the insurer to apply the provisions of this section.

(3) For the purposes of sub-sections (1) and (2), any specified assets shall, subject to such conditions, if any, as may be specified, be deemed to be assets invested or kept invested in approved investments specified by regulations.

(4) In computing the assets referred to in sub-sections (1) and (2), any investment made with reference to any currency other than the Indian rupee which is in excess of the amount required to meet the liabilities of the insurers in India with reference to that currency, to the extent of such excess, shall not be taken into account:

Provided that nothing contained in this sub-section shall affect the operation of sub-section (2):

Provided further that the Authority may, either generally or in any particular case, direct that any investment shall, subject to such conditions as may be imposed, be taken into account, in such manner as may be specified in computing the assets referred to in sub-sections (1) and (2) and where any direction has been issued under this proviso, copies thereof shall be laid before each house of Parliament as soon as may be after it is issued.

(5) Where an insurer has accepted re-insurance in respect of any policies of life insurance issued by another insurer and maturing for payment in India or has ceded re-insurance to another insurer in respect of any such policies issued by himself, the sum referred to in sub-section (1) shall be increased by the amount of the liability involved in such acceptance and decreased by the amount of the liability involved in such cession.

(6) The Government securities and other approved securities in which assets are under sub-section (1) or sub-section (2) to be invested and kept invested shall be held by the insurer free of any encumbrance, charge, hypothecation or lien.

(7) The assets required by this section to be held invested by an insurer incorporated or domiciled outside India shall, except to the extent of any part thereof which consists of foreign assets held outside India, be held in India and all such assets shall be held in trust for the discharge of the liabilities of the nature referred to in subsection (1) and shall be vested in trustees resident in India and approved by the Authority, and the instrument of trust under this sub-section shall be executed by the insurer with the approval of the Authority and shall define the manner in which alone the subject-matter of the trust shall be dealt with.

Explanation.—This sub-section shall apply to an insurer incorporated in India whose share capital to the extent of one-third is owned by, or the members of whose governing body to the extent of one-third consists of members domiciled elsewhere than in India.

 

 

SECTION 27A.

(1) No insurer carrying on life insurance business shall invest or keep invested any part of his controlled fund and no insurer carrying on general business shall invest or keep invested any part of his assets otherwise than in any of the approved investments as may be specified by the regulations subject to such limitations, conditions and restrictions therein.

(2) Notwithstanding anything contained in sub-section (1) or sub-section (2) of section 27, an insurer may, subject to the provisions contained in the next succeeding sub-sections, invest or keep invested any part of his controlled fund or assets otherwise than in an approved investment, if—

(i) after such investment, the total amounts of all such investments of the insurer do not exceed fifteen(15%) per cent. of the sum referred to in sub-section (1) of section 27 or fifteen per cent. of the assets referred to in sub-section (2) as the case may be;

(ii) the investment is made, or, in the case of any investment already made, the continuance of such investment is with the consent of all the directors present at a meeting and eligible to vote, special notice of which has been given to all the directors then in India, and all such investments, including investments in which any director is interested, are reported without delay to the Authority with full details of the investments and the extent of the director’s interest in any such investment.

(3) An insurer shall not out of his controlled fund or assets as referred to in section 27,—

(a) invest in the shares of any one banking company; or

(b) invest in the shares or debentures of any one company, more than the percentage specified by the regulations.

(4) An insurer shall not out of his controlled fund or assets as referred to in sub-section (2) of section 27 invest or keep invested in the shares or debentures of any private limited company.

(5) All assets forming the controlled fund or assets as referred to in sub-section (2) of section 27, not being Government securities or other approved securities in which assets are to be invested or held invested in accordance with this section, shall (except for a part thereof not exceeding one-tenth of the controlled fund or assets as referred to in sub-section (2) thereof in value which may, subject to such conditions and restrictions as may be prescribed, be offered as security for any loantaken for purposes of any investment), be held free of any encumbrance, charge, hypothecation or lien.

(6) If at any time the Authority considers any one or more of the investments of an insurer to be unsuitable or undesirable, the Authority may, after giving the insurer an opportunity of being heard, direct him to realize the investment or investments, and the insurer shall comply with the direction within such time as may be specified in this behalf by the Authority.

(7) Nothing contained in this section shall be deemed to affect in any way the manner in which any moneys relating to the provident fund of any employee or to any security taken from any employee or other moneys of a like nature are required to be held by or under any Central Act, or Act of a State legislature.

Explanation.—In this section “controlled fund” means—

(a) in the case of any insurer carrying on life insurance business—

(i) all his funds, if he carries on no other class of insurance business;

(ii) all the funds in India appertaining to his life insurance business if he carries on some other class of insurance business also. Explanation.—For the purposes of sub-clauses (i) and (ii), the fund does not include any fund or portion thereof in respect of which the Authority is satisfied that such fund or portion, as the case may be, is regulated by the law in force of any country outside India or it would not be in the interest of the insurer to apply the provisions of this section;

(b) in the case of any other insurer carrying on life insurance business— (i) all his funds in India, if he carries on no other class of insurance business; (ii) all the funds in India appertaining to his life insurance business if he carries on some other class of insurance business also; but does not include any fund or portion thereof in respect of which the Authority is satisfied that such fund or portion thereof, as the case may be, is regulated by the law of any country outside India or in respect of which the Authority is satisfied that it would not be in the interest of the insurer to apply the provisions of this section.

 

SECTION 27B.

(1) All assets of an insurer carrying on general insurance business shall, subject to such conditions, if any, as may be prescribed, be deemed to be assets invested or kept invested in approved investments specified in section 27.

(2) All assets shall (except for a part thereof not exceeding one-tenth of the total assets in value which may subject to such conditions and restrictions as may be prescribed, be offered as security for any loan taken for purposes of any investment or for payment of claims, or which may be kept as security deposit with the banks for acceptance of policies) be held free of any encumbrance, charge, hypothecation or lien.

(3) Without prejudice to the powers conferred on the Authority by sub-section (5) of section 27A nothing contained in this section shall be deemed to require any insurer to realize any investment made in conformity with the provisions of sub-section (1) of section 27 after the commencement of the Insurance (Amendment) Act, 1968, which, after the making thereof, has ceased to be an approved investment within the meaning of this section.

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SECTION 27C. An insurer may invest not more than five per cent. in aggregate of his controlled fund or assets as referred to in sub-section (2) of section 27 in the companies belonging to the promoters, subject to such conditions as may be specified by the regulations.

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SECTION 27D.

 (1) Without prejudice to anything contained in this section, the Authority may, in the interests of the policyholders, specify by the regulations, the time, manner and other conditions of investment of assets to be held by an insurer for the purposes of this Act.

(2) The Authority may give specific directions for the time, manner and other conditions subject to which the funds of policyholders shall be invested in the infrastructure and social sector as may be specified by the regulations and such regulations shall apply uniformly to all the insurers carrying on the business of life insurance, general insurance, or health insurance or re-insurance in India on or after the commencement of the Insurance Regulatory and Development Authority Act, 1999.

(3) The Authority may, after taking into account the nature of business and to protect the interests of the policyholders, issue to an insurer the directions relating to the time, manner and other conditions of investment of assets to be held by him: Provided that no direction under this sub-section shall be issued unless the insurer concerned has been given a reasonable opportunity of being heard.

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SECTION 27E. No insurer shall directly or indirectly invest outside India the funds of the policyholders.’.

 

LETS’ CONSIDER SOME IMPORTANT DEFINITIONS

REGULATION 2(f)– “Financial Derivatives” means a derivative as defined under clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956, and includes a contract which derives its value from interest rates of underlying debt securities and such other derivative contracts as may be stipulated by the Authority, from time to time.

REGULATION 2(g) “Group” means: two or more individuals, association of individuals, firms, trusts, trustees or bodies corporate, or any combination thereof, which exercises, or is established to be in a position to exercise, significant influence and / or control, directly or indirectly, over any associate as defined in Accounting Standard (AS), body corporate, firm or trust, or use of common brand names, Associated persons, as may be stipulated by the Authority, from time to time, by issuance of guidelines under these regulations.

 Explanation: Use of common brand names in conjunction with other parameters of significant influence and / or control, whether direct or indirect shall be reckoned for determination for inclusion as forming part of the group or otherwise.

REGULATION 2(h) “Infrastructure facility” means, the ‘Harmonized Master list of Infrastructure sub-sectors’ as per Gazette Notification Dt. 14th October, 2014 of Department of Economic Affairs, as amended from time to time, and shall also include the following:

1. a road, including toll road, a bridge or a rail system;

2. a highway project including other activities being an integral part of the highway project; 3. a port, airport, inland waterway or inland port and associated railway sidings;

4. a water supply project, irrigation project, water treatment system, sanitation and sewerage system or solid waste management system;

5. telecommunication services whether basic or cellular, including radio paging, domestic satellite service (i.e., a satellite owned and operated by an Indian company for providing telecommunication service), network of trunking, broadband network and internet services; 6. an industrial park or special economic zone;

7. generation or generation and distribution of power (both conventional and non-conventional);

8. transmission or distribution of power by laying a network of new transmission or distribution lines including telecom towers;

9. construction relating to projects involving agro-processing and supply of inputs to agriculture;

10. construction for preservation and storage of processed agro-products, perishable goods such as fruits, vegetables and flowers including testing facilities for quality;

11. construction of educational institutions and hospitals;

REGULATION 2(i) “Investment Assets” mean all investments made out of:

(1) in the case of Life Insurer

(i) shareholders’ funds representing solvency margin, non-unit reserves of unit linked insurance business, participating and non-participating funds of policyholders, funds of variable insurance products including One Year Renewable pure Group Term Assurance Business (OYRGTA) at their carrying value;

(ii) policyholders’ funds of Pension, Annuity business and Group business including funds of variable insurance products at their carrying value;

(iii) policyholders’ unit reserves of unit linked insurance business including funds of variable insurance products at their market value as per guidelines issued under these regulations, from time to time.

 (2) in the case of General Insurer including an insurer carrying on business of re-insurance or health insurance or in case of a branch of a foreign company engaged in the business of re-insurance, funds maintained in its head office account, shareholders’ funds representing solvency margin and policyholders’ funds at their carrying value as shown in its balance sheet prepared in accordance with any regulations issued in that behalf for the time being in force, by IRDAI (Preparation of Financial Statements and Auditors’ Report of Insurance Companies) Regulations.

REGULATION 2 (j) Money Market Instruments–  Money Market Instruments shall comprise of Short-term investments with maturity not more than one year comprising of the following instruments:

1. Certificate of deposit rated by a credit rating agency registered under SEBI (Credit Rating Agencies) Regulations, 1999.

2. Commercial paper rated by a credit rating agency registered under SEBI (Credit Rating Agencies) Regulations, 1999.

3. Reverse Repo.

4. Treasury Bills (including Cash Management Bills.

5. Call, Notice, Term Money.

6. CBLO as per Schedules I and II of these Regulations.

7. Any other instrument as may be prescribed by the Authority

 

 

REGULATION 3 –

(a)No insurer shall invest or keep invested any part of its Controlled Fund, as defined under Sec 27A / Assets as defined under Sec 27 (2) of the Act, read together with Sec 27E of the Act, otherwise than in approved securities, as per Section 2(3) of Insurance Act, 1938, as amended from time to time and in any of the following approved investments, namely:—

1. debentures secured by a first charge on any immoveable property plant or equipment of any company which has paid interest in full;

2. debentures secured by a first charge on any immovable property, plant or equipment of any company where either the book value or the market value, whichever is less, of such property, plant or equipment is more than three times the value of such debentures;

3. first debentures secured by a floating charge on all its assets of any company which has paid dividends on its equity shares;

4. preference shares of any company which has paid dividends on its equity shares for at least two consecutive years immediately preceding;

5. equity shares of any listed company on which not less than ten percent dividends have been paid for at least two consecutive years immediately preceding;

6. immovable property situated in India, provided that the property is free of all encumbrances;

7. loans on policies of life insurance within their surrender values issued by him or by an insurer whose business he has acquired and in respect of which business he has assumed liability;

8. Fixed Deposits with banks included for the time being in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934) and; such other investments as the Authority may, by notification in the Official Gazette, declare to be Approved Investments.

b) In addition the following investments shall be deemed as Approved Investments;

 

 1. All rated debentures (including bonds) and other rated & secured debt instruments as per Note appended to Regulations 4 to 9. Equity shares, preference shares and debt instruments issued by All India Financial Institutions recognized as such by Reserve Bank of India – investments shall be made in terms of investment policy guidelines, benchmarks and exposure norms, limits approved by the Board of Directors of the insurer.

2. Bonds or debentures issued by companies, rated not less than AA or its equivalent and A1 or equivalent ratings for short term bonds, debentures, certificate of deposits and commercial papers by a credit rating agency, registered under SEBI (Credit Rating Agencies) Regulations 1999.

3. Subject to norms and limits approved by the Board of Directors of the insurer’s deposits [including fixed deposits as per Regulation 3 (a) (8)] with banks (e.g. in current account, call deposits, notice deposits, certificate of deposits etc.) included for the time being in the Second Schedule to Reserve Bank of India Act, 1934 (2 of 1934) and deposits with primary dealers duly recognized by Reserve Bank of India as such.

4. Collateralized Borrowing & Lending Obligations (CBLO) created by the Clearing Corporation of India Ltd and recognized by the Reserve Bank of India and exposure to Gilt, G Sec and liquid mutual fund forming part of Approved Investments as per Mutual Fund Guidelines issued under these regulations and money market instrument / investment.

5. Asset Backed Securities with underlying Housing loans or having infrastructure assets as underlying as defined under ‘infrastructure facility’ in Regulation 2 (h) as amended from time to time.

6. Commercial papers issued by All India Financial Institutions recognized as such by Reserve Bank of India having a credit rating of A1 by a credit rating agency registered under SEBI (Credit Rating Agencies) Regulations 1999.

7. Money Market instruments as defined in Regulation 2(j) of this Regulation, subject to provisions of approved investments.

Explanation: All conditions mentioned in the ‘note’ appended to Regulation 4 to 9 shall be complied with.

c) The board of the insurer, to comply with the provisions of Section 27A (2) (ii) of the Act, may delegate to Investment Committee, for investments already made and the continuance of such investments from controlled fund / assets, in otherwise than in an approved investment, and in All India Financial Institutions recognized as such by RBI for investments carrying a rating of less than AA and being part of Approved Investment. The investment committee shall be responsible for the details, analysis and review of non-performing assets of investments on a quarterly periodicity. The insurer shall report compliance of this provision to the Authority through Form 4.

d) Unless specifically permitted by the Authority, no investment shall be made in any entity not formed under laws relating to companies in India and in any private limited company or one person company or a company formed under section 8 of the Companies Act, 2013 or erstwhile Section 25 of the Companies Act, 1956.

 

REGULATORY DIRECTIVES FOR INVESTMENTS BY INSURANCE COMPANIES

  1. DEFINITION OF INVESTMENT ASSETS

REGULATION 2(i) “Investment Assets” mean all investments made out of:

(1) in the case of Life Insurer

(i) shareholders’ funds representing solvency margin, non-unit reserves of unit linked insurance business, participating and non-participating funds of policyholders, funds of variable insurance products including One Year Renewable pure Group Term Assurance Business (OYRGTA) at their carrying value;

(ii) policyholders’ funds of Pension, Annuity business and Group business including funds of variable insurance products at their carrying value;

(iii) policyholders’ unit reserves of unit linked insurance business including funds of variable insurance products at their market value as per guidelines issued under these regulations, from time to time.

 (2) in the case of General Insurer including an insurer carrying on business of re-insurance or health insurance or in case of a branch of a foreign company engaged in the business of re-insurance, funds maintained in its head office account, shareholders’ funds representing solvency margin and policyholders’ funds at their carrying value as shown in its balance sheet prepared in accordance with any regulations issued in that behalf for the time being in force, by IRDAI (Preparation of Financial Statements and Auditors’ Report of Insurance Companies) Regulations.

 

  1. INVESTMENT TO BE BASED ON CREDIT RATINGS; All investments in assets or instruments , which are capable of being rated as per market practice, shall be made on the basis of Credit Rating of such assets or instruments. No investment shall be made in instruments, if such instruments are capable of being rated , but not rated.
  2. CREDIT RATING AGENCIES; the rating should be carried out by a Credit Rating Agency registered with SEBI(Credit Rating Agencies) Regulations, 1999. For example CRISIL(India) and ICRA etc.

Rating

Explanations
AAA Highest Safety: Lowest Credit Risk
AA High Safety: Very Low Credit Risk
A Adequate Safety: Low Credit Risk
BBB Moderate Safety: Moderate Credit Risk
BB Moderate Risk of default- relating to timely servicing of financial obligations.
B High Risk of Default- relating to timely servicing of financial obligations.
C Very High Risk of Default- relating to timely servicing of financial obligations.
D

Default/expected to be in default soon.

  1. APPROVED INVESTMENTS;the Corporate Bonds or Debentures rated not less than AA or its equivalent and PI or equivalent rating for Short Term Bonds, Debenture, Certificates of Deposits and Commercial papers, by a Credit Rating Agency , registered SEBI(Credit Rating Agencies) Regulations, 1999 would be considered as “ Approved Investments”.
  2. RATING OF DEBT INSTRUMENTS; the rating of Debt Instrument issued by All India Financial Instruments recognized as such by RBI shall be of “AA” or equivalent rating. In case investment of this grade are not available to meet requirements of the investing insurance company and the Investment Committee of the investment company is fully satisfied about the same , thin then for reasons to be recorded in the “Investment Committee’s Minutes”. The Investment Committee may approve investments in instruments carrying current rating of not less than “A+” or equivalent as rated by a Credit Rating Agency duly registered with SEBI and would be considered as “ Approved Investments”.
  1. AUTOMATIC RECLASSIFICATION AS OTHER INVESTMENTS; Approved Investments which are downgraded below the minimum rating prescribed should be automatically re-classified under “ OTHER INVESTMENTS” category for the purpose of “Pattern of Investments”.
  1. INVESTMENT IN LISTED EQUITY SHARES; investment in Equity Shares listed on a recognized Stock Exchange should be made in actively traded and liquid instruments viz equity shares other than those defined as thinly traded as per SEBI Regulations and Guidelines governing Mutual Funds issued by SEBI from time to time.
  2. INVESTMENT IN DEBT INSTRUMENTS

 

  • a) Not less than 75% of investment in debt instruments (including Central Government Securities, State Government Securities or Other Approved Securities) in the case of Life Insurer and not less than 65% of investment in debt instruments (including Central Government Securities, State Government Securities or Other Approved Securities)in the case of General Insurer- shall be in the Sovereign Debt, AAA or equivalent rating for long term and PI(=A1) or equivalent for Short Term Instruments.
  • b) Not more than 5% of funds under Regulation 3(a) and 3(c) in debt instruments (including Central Government Securities, State Government Securities or Other Approved Securities) in case of Life Insurer and not more than 8% of investment in debt instruments (including Central Government Securities, State Government Securities or Other Approved Securities) in the case of General Insurer- shall have  rating “A” or below or equivalent rating for long term.

NOTE:

  1. Funds under Regulations 3(a) include all funds of Life Insurance Business and one year Renewal Pure Group Term Assurance business and Non-unit reserves of all categories of Unit Linked Life Insurance Business.
  2. Funds under Regulation 3(c) include the Unit Reserves portion of all categories of Unit Linked Funds.

 

  1. APPROVED RISK ANALYSIS AND MANAGEMENT: please note that rating should not replace Appropriate Risk Analysis and Management on the part of Insurer. The insurer should conduct Risk Analysis commensurate with complexity of the products and the materiality of their holding or could also refrain from such investment, which are risk prone.

 

REGULATION 8 OF INVESTMENTS – General Insurer including an insurer carrying on business of re-insurance or health insurance Without prejudice to Sections 10 (2AA), 27, or 27B of the Act and any provisions of these regulations, an insurer carrying on the business of General Insurance including an insurer carrying on business of re-insurance or health insurance shall invest and at all times keep invested its investment assets in the manner set out below:

Sr. No.

Type of Investment Percentage of Investment Assets
1 Central Government Securities Not Less than 20%
2 Central Government Securities, State Government Securities or Other Approved Securities Not less than 30%[inclusive of (i)]
3 Approved Investments as specified in Regulation 3 (a), (b) and Other Investments as specified in Section 27A (2) and Schedule II to these Regulations, (all taken together) subject to Exposure / Prudential Norms as specified in Regulation 9: Not exceeding 70%
4 Other investments as specified in Section 27A (2), subject to Exposure / Prudential Norms as specified in Regulation 9: Not more than 15%
5 Housing and loans to State Government for Housing and Fire Fighting equipment, by way of subscription or purchase of:

 

A. Investments in Housing

a). Bonds / Debentures issued by HUDCO, National Housing Bank.

b). Bonds / debentures of Housing Finance Companies either duly accredited by National Housing Bank, for house building activities, or duly guaranteed by Government or carrying current rating of not less than ‘AA’ by a credit rating agency registered under SEBI (Credit Rating Agencies) Regulations, 1999

c). Asset Backed Securities with underlying Housing loans, satisfying the norms specified in the Guidelines issued under these regulations from time to time.

 

B. Investment in Infrastructure (Explanation: Subscription or purchase of Bonds/ Debentures, Equity and Asset Backed Securities with underlying infrastructure assets would qualify for the purpose of this requirement.

 

‘Infrastructure facility’ shall have the meaning as given in Regulation 2 (h) as amended from time to time.

 

Note: Investments made under category (i) and (ii) above may be considered as investment in housing or infrastructure, as the case may be, provided the respective government issues such a security specifically to meet the needs of any of the sectors specified as ‘infrastructure facility.

Total Investment in housing and infrastructure (i.e.,) investment in categories (i), (ii), (iii) and (iv) above taken together shall not be less than 15% of the Investment Assets

 

REGULATION 9. Exposure / Prudential Norms Without prejudice to anything contained in Sections 10(2AA), 27, 27A, 27B and 27C of the Act every insurer shall limit its investment of controlled funds / all assets as per the following exposure norms:

 

  1. Exposure norms for:

 

  • (a) all funds of Life insurance business and One Year Renewable pure Group Term Assurance Business (OYRGTA), and non-unit reserves of all categories of Unit linked life insurance business;
  • (b) all funds of Pension, Annuity and Group Business [as defined under Regulation 2 (1) (e) of IRDAI (Actuarial Report and Abstract for life insurance business) Regulations];
  • (c) the unit reserves portion of all categories of Unit linked funds, as per Regulation 7, Life, Pension, Annuity and Group business and each segregated fund within Unit Linked Insurance business (except for promoter group exposure).

 

Type of Investment (1)

Limit for ‘Investee’ Company (2) Limit for the entire Group of the Investee Company (3) Limit for the entire Group of the Investee Company (3)
a. Investment in ‘Equity’, Preference Shares, Convertible Debentures. 10% * of Outstanding Equity Shares (Face Value) or

 

10% of the amount under point A.1.(a) or A.1.(b) or A.1.(c) [segregated fund] above considered separately in the case of Life insurers / amount under A.2 or A.3 or A.4 in the case of General Insurer including an insurer carrying on business of reinsurance or health insurance

 

Whichever is lower

Not more than 15% of the amount under point A.1.(a) or A.1.(b) or A.1.(c) or A.2 or A.3 or A.4

 

Exposure to Investments made in companies belonging to Promoter Group shall be made as per Point 7 under notes to Regulation 9.

Investment by the insurer in any industrial sector should not exceed 15% of the amount under point A.1.(a) or A.1.(b) or A.1.(c) or A.2 or A.3 or A.4

 

Note: Industrial Sector shall be classified in the lines of National Industrial Classification (All Economic Activities) – 2008 [NIC] for all sectors, except infrastructure sector.

 

Exposure shall be calculated at Division level from A to R. For Financial and Insurance Activities sector exposure shall be at Section level.

 

Exposure to ‘infrastructure’ investments are subject to Note: 1, 2, 3 and 4 mentioned below.

b. Investment in Debt (incl. CPs) / Loans and any other permitted Investments as per Act / Regulation other than item ‘a’ above. 10% * of the Paid-up Share capital, Free reserves (excluding revaluation reserve) and Debentures / Bonds (incl. CPs) of the ‘Investee’ company or

 

10% of the amount under point A.1.(a) or A.1.(b) or A.1.(c) [segregated fund] above considered separately in the case of Life insurers / amount under A.2 or A.3 or A.4 in the case of General Insurer including an insurer carrying on business of reinsurance or health insurance.

 

Whichever is lower

 

* In the case of insurers having investment assets within the meaning of Regulation 2 (i) (1) and Regulation 2 (i) (2) of the under mentioned size, the (*) marked limit in the above table for investment in equity, preference shares, convertible debentures, debt, loans or any other permitted investment under the Regulations, shall stand substituted as under:

 

  1. General insurance business,
  1. Re-insurance business
  1. Health insurance business for both Approved Investments as per Regulation 3 (a), Schedule I and Schedule II of these Regulations, and Other Investments as permitted under Section 27A (2) shall be as under.

 

  1. The maximum exposure limit for a single ‘investee’ company (equity, debt and other investments taken together) from all investment assets under point (A.1.a, A.1.b, A.1.c all taken together), (A.2), (A.3) and (A.4) mentioned above, shall not exceed the lower of the following;

 

  • (i) an amount of 10% of investment assets as under Regulation 2 (i) (1), Regulation 2 (i) (2) excluding fair value change of investment assets under Regulation 4 (a), 4.(b) and Regulation 2(i);
  •  (ii) an aggregate of amount calculated under point (a) and (b) of the following table
Investment assets Limit for investee company
  Equity Debt
Rs 250000 Crores or more 15% of outstanding equity shares (face value) 15% of paid up share capital, free reserves (excluding revaluation reserve) & debentures / bonds
Rs. 50000 Crores but less than Rs. 250000 Crores 12% of outstanding equity shares (face value) 12% of paid up share capital, free reserves (excluding revaluation reserve) & debentures / bonds
Less than Rs. 50000 Crores 10% of outstanding equity shares (face value) 10% of paid up share capital, free reserves (excluding revaluation reserve) & debentures / bonds

Note:

1. Industry sector norms shall not apply for investments made in ‘Infrastructure facility’ sector as defined under Regulation 2(h) of this regulation as amended from time to time. NIC classification shall not apply to investments made in ‘Infrastructure facility’.

 

2. Investments in Infrastructure Debt Fund (IDF), backed by Central Government as approved by the Authority, on a case to case basis shall be reckoned for investments in Infrastructure.

 

3. Exposure to a public limited ‘Infrastructure investee company’ will be:

i). 20% of outstanding equity shares (face value) in case of equity (or)

ii). 20% of outstanding equity plus free reserves (excluding revaluation reserve) plus debentures / bonds taken together, in the case of debt (or)

iii). amount under Regulation 9 (B) (i), whichever is lower.

iv). The 20% mentioned above, can be further increased by an additional 5%, in case of debt instruments alone, with the prior approval of Board of Insurer.

v). The outstanding tenure of debt instruments, beyond the exposure prescribed in the above table in this regulation, in an infrastructure Investee Company, should not be less than 5 years at the time of investment.

vi). in case of Equity investment, dividend track record as Section 27A(1)(i) and 27B(1)(h)of the Insurance Act, and as  per these regulations, in the case of primary issuance of a wholly owned subsidiary of a Corporate / PSU shall apply to the holding company.

vii). all investments made in an ‘infrastructure investee company’ shall be subject to group / promoter group exposure norms.

4. An insurer can, at the time of investing, subject to group/promoter group exposure norms, invest a maximum of 20% of the Project Cost ( as decided by a competent body) of a Public Limited Special Purpose Vehicle(SPV) engaged in Infrastructure Sector , or an amount under Regulation 9B(i) whichever is lower as a part of Approved Investment provided:

i)        Such investment is in debt securities.

ii)       The parent company guarantee the entire debt extended and the interest payment of SPV.

iii)     The Principal or Interest , if in default and if not paid within 90 days of the due date , such debt shall be classified under “ OTHER INVESTMENT”.

iv)     The latest instrument of the Parent Company has rating of not less than AA.

v)      Such guarantee of Parent Company should not exceed 20% of the Net Worth of the Parent Company including the existing guarantees if any , give.

vi)     Net Worth of Parent Company , if utilized ,shall not be less than Rs. 500 Crores or where Parent Company is listed on Stock Exchanges having nationwide terminals; the Net Worth should not be less than Rs. 250 crores.

 

5. Investment in securitized assets [Mortgaged Backed Securities (MBS) / Asset Backed Securities (ABS) / Security Receipts (SR)] both under approved and other investment category shall not exceed 10% of Investment Assets in case of Life companies and 5% of Investment Asset in the case of General companies. Approved Investment in MBS / ABS with underlying Housing or Infrastructure Assets shall not exceed 10% of investment assets in the case of life companies and not more than 5% of investment assets in the case of General companies. Any MBS / ABS with underlying housing or infrastructure assets, if downgraded below AAA or equivalent, shall be reclassified as Other Investments.

 

6. Investment Property within the meaning of Accounting Standards, and covered under Regulation 3 (a) (6) shall not exceed, at the time of investment, 5% of (a) Investment Assets in the case of general insurer and (b) 5% of Investment Assets of life funds in the case of life insurer. Immovable property, held as ‘investment property’ shall not be for ‘selfuse’. Immovable property, for self-use, shall be purchased only out of shareholders funds, and shall comply with circular / guidelines issued.

 

7. Subject to exposure limits mentioned in the table above, an insurer shall not have investments of more than 5% in aggregate of its investment assets in all companies belonging to the promoters’ group. Investment made in all companies belonging to the promoters’ group shall not be made by way of private placement or in unlisted instruments (equity, debt, certificate of deposits and fixed deposits held in a Scheduled Commercial Bank), except for companies formed by Insurers under Note 12 to Regulation 9.

8. The exposure limit for financial and insurance activities (as per Section K of NIC classification – 2008, as amended from time to time) shall stand at 25% of investment assets for all insurers. Investment in Housing Financing Companies and Infrastructure Financing Companies (except investment in Bonds / debentures of HUDCO, NHB and only bonds issued by Housing Finance Companies having a rating of not less than AAA, and investment in Debt, Equity in dedicated infrastructure financing entities forming part of Infrastructure sector) shall form part of exposure to financial and insurance activities (as per Section K of NIC classification – 2008) .

 

9. Where an investment is in partly paid-up shares, the uncalled liability on such shares shall be added to the amount invested for the purpose of computing exposure norms.

 

10. Notwithstanding anything contained in Regulation 9 (B) where new shares are issued to the existing shareholders by a company the existing shares of which are covered by Regulation 3 (a) (5) and the insurer is already a shareholder, the insurer may subscribe to such new shares, provided that the proportion of new shares subscribed by him does not exceed the proportion which the paid-up amount on the shares held by him immediately before such subscription bears to the total paid-up capital of the company at the time of such subscription.

 

11. Investment in fixed deposit and certificate of deposit of a Scheduled Bank, in case of life insurers, would be deemed as exposure to financial and insurance activities (as per Section K of NIC classification – 2008). No investment in deposits including FDs and CDs in financial institutions falling under Promoter Group shall be made. Investment in FDs shall not exceed either 3% of controlled fund or not more than 5% of respective fund size [Pension & General Annuity Fund and Unit linked fund(s) at SFIN level], whichever is lower, in the case of Life Insurers and 15% of Investment Assets as per Regulation 2 (i) (2) in the case of General Insurer including an insurer carrying on business of re-insurance or health insurance Note: Fixed Deposits as permitted under this Regulation kept as ASBA (Application Supported by Blocked Amount) deposit, including FDs with Banks falling under the promoter group of the Insurer, or otherwise, shall be excluded in computation of limits mentioned above. FDs of Banks under Promoter Group, earmarked for complying with ASBA requirement, will be part of exposure to Promoter Group.

 

12. An insurer shall not out of the controlled fund / assets invest or keep invested in the shares or debentures of any one company more than the exposure prescribed in Regulation 9 above, provided that nothing in this regulation shall apply to any investment made with the previous approval of the Board of the Authority by an insurer, being a company with a view to forming a subsidiary company carrying on insurance / re-insurance business.

 

13. The investee company debt exposure, in Housing Finance Companies, rated not less than AA+, shall be upto 20% of paid-up share capital, free reserves (excluding revaluation reserve) and debentures / bonds (incl. CPs) or amount under Reg. 9(B)(i) whichever is lower. The 20% limit mentioned herein can be further increased by an additional 5% with the prior approval of Board of Insurer. All exposure norms applicable to group, promoter group shall be applicable to all investments made in a Housing Finance Company.

 

REGULATIONS 10.As per Regulation 9 of IRDAI( Investment )(Fifth Amendment) Regulations, 2013 , every insurer shall submit to the Authority the following returns (in physical / electronic mode) within such time, at such intervals duly verified/certified in the manner as indicated there against.

 

Sr. No.

Form Description Periodicity Time Limit for submission Verified/Certify by
1 Form 1 Statement of Investment and Income on Investment. Quarterly Within 30 days of the end of the Quarter. Principal Officer / Chief of Investment / Chief of (Finance).
2 Form 2(Part A,B,C) Statement of Downgraded Investments, Details of Rated Instruments. Quarterly Within 30 days of the end of the Quarter. Principal Officer / Chief of Investment / Chief of (Finance).
3 Form 3A( Part A,B,C, D &E) Statement of Investments Assets (Life Insurers). Quarterly Within 30 days of the end of the Quarter. Principal Officer / Chief of Investment / Chief of (Finance).
4 Form 3B( Part A&B) Statement of Investment Assets (General Insurer including an insurer carrying on business of reinsurance or health insurance). Quarterly Within 30 days of the end of the Quarter. Principal Officer / Chief of Investment / Chief of (Finance).
5 Form 4(Part A) Exposure / Prudential and other Investment Norms – Compliance Certificate. Quarterly Within 30 days of the end of the Quarter. Principal Officer / Chief of Investment / Chief of (Finance).
6 Form 4(Part B) Internal / Concurrent Auditor’s Certificate on Investment Risk Management Systems – Implementation Status. Quarterly Within 30 days of the end of the Quarter. Principal Officer / Chief of Investment / Chief of (Finance).
7 Form 4A( Part A,B, C &D) Statement of Investment Subject to Exposure Norms – Investee Company, Group, Promoter Group, Industry Sector. Quarterly Within 30 days of the end of the Quarter. Principal Officer / Chief of Investment / Chief of (Finance).
8 Form 5 Statement of Investment Reconciliation. Quarterly Within 30 days of the end of the Quarter. Principal Officer / Chief of Investment / Chief of (Finance).
9 Form 5A Statement of Investment in Mutual Funds. Quarterly Within 30 days of the end of the Quarter. Principal Officer / Chief of Investment / Chief of (Finance).
10 Form 6 Certificate under Sec 28(2A),28(2B),28(3) the Insurance Act, 1938. Quarterly Within 30 days of the end of the Quarter. Principal Officer / Chief of Investment / Chief of (Finance).
11 Form 7 Statement of Non-Performing Assets. Quarterly Within 30 days of the end of the Quarter. Principal Officer / Chief of Investment / Chief of (Finance).

DISCLAIMER: the article presented here is only for sharing information and knowledge with readers. The views if any are personal views of the author. In case of necessity do consult with Insurance Professionals for more clarity and understanding on subject matter.

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