IRDA levels equity exposure limit for LIC and private insurers

25 August 2008

Mumbai: The Insurance Regulatory and Development Authority (IRDA) has pared equity exposure in a single company to 10 per cent for all insurance companies in a bid to provide level playing field to private insurance companies vis-a-vis state-owned insurers.

This is the first of a series of changes in rules proposed by the insurance sector regulator to provide private sector insurance companies operational parity with state-owned Life Insurance Corporation (LIC).

Once the new rules come into force LIC would have to bring down its exposure limit in a single company from 30 per cent to 10 per cent. This would deprive LIC the flexibility it enjoyed on its investment portfolio.

As per the revised guidelines, both LIC and private sector insurers can invest 10 per cent of outstanding shares or 10 per cent of their total funds, whichever is lower, in equity shares of a single company.

The IRDA is also studying a proposal to make changes in the LIC Act to enhance its capital base from Rs5 crore to Rs100 crore. This will help LIC comply with the minimum capital prescribed by the IRDA Act.

The changes in investment norms followed recommendations by a working group set up by the IRDA, to review comprehensively the current regulatory and other provisions on investments of insurance companies and suggest changes considered necessary in the light of experience gained / the constraints faced by insurance companies, as well as the developments in financial markets.