After examining the demands of insurers, the insurance market regulator has allowed the insurance companies to invest at their own discretion. IRDA has said that the repo/ reverse repo transaction will now be treated at par with Collateralized Borrowing and Lending Obligation (CBLO)
IRDA has done away with the investment limit of 10 percent on repo/reverse repo transactions in government securities. For this, the insurance market regulator has asked the insurance companies to invest in government securities from repo and reverse repo transactions at their own discretion.
IRDA in a circular said that the reverse repo transaction will now be treated on par with Collateralized Borrowing and Lending Obligation (CBLO).
Repo/ reverse repo transactions are just like money-market instruments in which one party agrees to sell security to another party for debt but on the condition of buy back on any decided date. It is generally use for raising short-term capital from the market.
A few months back, IRDA had issued a circular allowing 10 percent repo/reverse repo transaction limit in corporate and government securities. However, some insurers had approached IRDA stating that the limiting repo/reverse repo transaction in government securities to certain level of the funds would restrict the ability to generate appropriate returns for policy holders. The insurers had demanded that the reverse repo transactions must be treated like CBLO transactions. IRDA, after examining the demand, lifted the investment cap of 10 percent on repo/reverse repo transactions in government securities and stipulated that it must be treated at par with CBLO.
However, IRDA advised the insurer to follow the pattern of investments as prescribed by the investment regulations.
GN Agarwal, CEO, Future Generali Life Insurance appreciated the move of regulator and said that the insurance sector will be benefited by this. “Earlier, we had to follow investment cap of 10 percent in government security from repo/ reverse repo route so the chances of getting fair capital appreciation were limited. But the regulator has removed this which may have positive impact on the struggling insurance sector.”