IRDAI clears investments in private companies, eases infrastructure funding norms

Synopsis

IRDAI has expanded insurers' investment options by permitting investments in private limited companies, infrastructure SPV debt and repo, reverse repo and government securities lending transactions. The changes aim to improve investment flexibility and liquidity while setting exposure caps, eligibility criteria and disclosure requirements. The regulator has also revised limits for investments in promoter group companies.

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The Insurance Regulatory and Development Authority of India (IRDAI) has widened the investment avenues available to insurers by allowing investments in private limited companies, easing norms for financing infrastructure projects through special purpose vehicles (SPVs), and permitting repo and government securities lending transactions, in a move aimed at improving investment flexibility and liquidity management.

One of the key changes allows insurers to invest in debt issued by infrastructure SPVs, or project-specific companies set up to build assets such as roads, ports and power plants. Insurers can invest up to 20% of the debt issued by an SPV, or the applicable investment limit under existing regulations, whichever is lower. The project should be operational with stable cash flows, the funds must be used only to refinance existing debt, and the debt must carry a minimum AA rating. SPVs will have to disclose quarterly cash flows, while insurers must report details such as the SPV's name, investment amount, tenure, coupon rate and commercial operation date in their financial statements.

Insurers can now invest in equity and debt instruments of private limited companies as part of their other investments portfolio. Life insurers can invest up to 3% of their life or segregated funds, while general insurers can invest up to 5% of their investment assets in private limited companies, Alternative Investment Funds (AIFs) and Venture Funds (VFs), taken together. Also, the investee company must have a minimum net worth of Rs 25 crore and should have reported profits in at least two of the previous three financial years. Investments in private companies belonging to an insurer's promoter group is prohibited.

The regulator has also revised investment norms for promoter group companies. An insurer can invest up to 5% of its investment assets in a single promoter-controlled company, with the aggregate exposure across all promoter group companies capped at 5%. Such investments cannot be made through private placements or unlisted securities, except in specified cases such as qualified institutional placements of BSE100/NSE100 companies and certain insurer-promoted entities.

IRDAI has also allowed insurers to undertake repo transactions and government securities lending to improve liquidity management. The combined exposure has been capped at 25% of eligible government securities after meeting statutory investment requirements, or Rs 10,000 crore, whichever is lower, and must comply with RBI guidelines.

The regulator has also permitted reverse repo transactions in corporate debt securities. Life insurers can invest up to 10% of their funds, while general, health and reinsurance companies can invest up to 10% of their investment assets. The 10% limit does not apply to reverse repo transactions in government securities.