Now insurance companies will have to define their objective behind investing in a particular scrip or bond to the policyholders.
IRDAI has come out with a circular in which it has asked insurance companies to disclose the rationale behind their investment decisions. In fact, the insurance regulator has asked insurance companies to have a pre-defined investment philosophy.
The insurance regulator instructed insurance companies to monitor the essential business parameters such as financial performance, capital structure and corporate governance of the companies before putting policyholder’s money.
With assets of over Rs.26 lakh crore as on March 2016, insurance companies are significant institutional investors in securities markets.
In addition, the insurance regulator has asked insurance companies to disclose rationale behind their voting pattern while exercising voting rights. Typically, analysts and fund managers recommend their voting decision to their top management for approval. Insurers can also appoint a third party to vote on its behalf, which entails costs.
The new guidelines are prepared considering the significant role of LIC in the corporate battle between Tata Sons and former Chairman Cyrus Mistry.
Justifying the circular, the insurance regulator has said, “Insurance companies should play an active role in the general meetings of investee companies and engage with the managements at a greater level to improve their governance. This will result in informed decisions by the parties and ultimately improve the return on investments of insurers”
IRDAI further said, “The principles have already been adopted by other institutional investors like mutual funds, pension funds, foreign portfolio investors (FPIs), alternative investment funds (AIFs) and so on. The adoption of the principles will improve the confidence of the policyholders in the insurers and ensure better corporate governance and decision-making at investee companies.”