DEAR VIEWERS,
In order to hedge risk in the falling interest rate and equity market scenario, the Insurance Regulatory and Development Authority (IRDA) is planning to allow insurance companies to invest in derivatives such as equity futures and options, credit default swaps, stock indexed options, commodity futures in gold and silver and interest rate swaps.
The regulator said the investment committee formed to look into the Insurance Amendment Bill had proposed that insurers be allowed to invest in these derivatives. Derivatives are a category of financial instruments and their value is derived partly from one or more underlying asset and help companies to hedge against fluctuations in equity, foreign exchange and interest rates.
Industry experts said insurers would be permitted to use equity derivatives for hedging risks only. "Irda may only allow us to hedge and not to speculate. We need to see to what extent we can take exposure. So the regulation may not be of big help," said a senior executive of a large life insurance company.
The move will help insurers to hedge their risk and protect returns of policyholders. It will also open up other avenues of investment for their investment portfolio.
At present, insurers can invest 50% of their funds in government securities, 15% in infrastructure projects and the rest 35% in other approved securities. From ULIP funds, insurers can invest a large part of the investment in equity, depending upon the policyholder's choice.
- - - - EDITOR
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