The Insurance Regulatory and Development Authority (Irda) has worked out a proverbial middle path out of the impasse over how much an insurer can invest in a particular company.
It has suggested hiking the cap to 12% or 15% depending on the controlled funds of the insurer.
The cap has been at 10% since 1999.
However, in November last year, the government approved an investment limit of 30% in a given company for state-owned Life Insurance Corporation of India (LIC) in a bid to push through its ambitious divestment programme.
This sparked a controversy, with the regulator expressing its displeasure at the relaxation given for LIC and terming the move ‘imprudent’.
“It is a legal matter regarding the LIC Act of 1958 and Insurance Act of 1999,” a senior LIC official said to a query on the ambiguity that has crept in.
The official agreed, however, that the relaxation will help LIC more than private players. “The move would definitely give flexibility for the corporation to frame better investment strategies going forward. We would be happy to pick up stocks available at good valuations.”
When there were differences of opinion regarding separate investment norms for private players and LIC, the Ministry of Law had clarified that the LIC Act supersedes the Insurance Act of 1999.
Currently, LIC – an active participant in the government’s divestment programme – exceeds the limit of 15% in as many as 16 companies. Indeed, it holds a whopping 25% in Corporation Bank. It bid around Rs6,000 crore for the fourth round of stake sale in NTPC.
The state-run insurer’s profit from sale of equity investments last fiscal was close to Rs9,000 crore. Experts, however, see the hike in the investment limit having little impact on the private players. Currently, most of these players are not close to even the stipulated 10% limit in any company.
“For private insurance players, 10% limit was not a major constraint. An immediate reallocation of portfolios looks unlikely. But it gives them flexibility in the long run,” said Sudhakar Shanbag, chief investment officer, Kotak Life Insurance.