Regulator IRDAI on Friday increased the investment limit by insurance companies in financial and insurance activities to 30 per cent from the existing 25 per cent, a move aimed at providing greater flexibility to insurers to park their funds for better returns.
"The authority... permits all insurers to have exposure to financial and insurance activities up to 30 per cent of investment assets," the Insurance Regulatory and Development Authority of India (IRDAI) said in a circular.
Accordingly, the limit of 25 per cent of investment assets stands revised to a limit of 30 per cent of investment assets, it added.
Mayank Gupta, co-founder, and COO of Zopper, said that of late there have been a lot of welcome moves from IRDAI.
The increase of investment assets capping is a great step as this will provide more room for insurers to optimize their investment strategy, thereby giving potentially higher investment income in their P&L," Gupta said.
Commenting on the circular, Kapil Mehta, co-founder, SecureNow, said the IRDAI's decision is a very good development because it gives insurers the flexibility to invest in different assets and improve their returns over the long term.
"And since the restriction of 30 per cent in itself is not high, the overall safety of the insurer is not compromised," he said.
Mehta further said that typically, 70-75 per cent of investment goes into government securities and state government bonds, and infrastructure bonds, which are safe but provide low returns.
Mihir Vora, Senior Director, Chief Investment Officer, Max Life Insurance, said the overall importance of the financial sector has been increasing as banks and finance companies have grown significantly in size, and newer financial segments like insurance, asset management, broking, wealth management and fintech have also achieved remarkable growth in the equities and fixed income markets.
"This is a welcome development as it gives more flexibility to the insurance companies to invest, allowing them to diversify their exposures further. The limit is across equities and fixed income exposures," he added.
Expressing a similar opinion, Rushabh Gandhi, Deputy CEO, IndiaFirst Life, said that because of regulatory considerations, BFSI (Banking, Financial Services, and Insurance) exposure was restricted to 25 per cent for insurance companies.
"However, the BFSI weightage in key indices such as Nifty is about 35 per cent. Thus, the cap of 25 per cent was restrictive. The relaxation of the cap to 30 per cent by IRDAI will facilitate insurance companies to take a higher exposure in the BFSI sector," Gandhi said.