The insurance regulator has tightened equity investment norms by prescribing a dividend track record of 10% for the last two years instead of the earlier 4% in the last eight out of the nine years.
The Insurance Regulatory and Development Authority (IRDA) has said that insurance companies can invest in equity shares of any listed company where at least 10% dividend has been paid for at least two consecutive years under the approved investment category .
Under the unit-linked insurance plans, which are a mix of investment and protection, companies can invest 75% in approved securities and 25% in other than approved securities. Approved securities are those stocks that have dividend paying record and are liquid.
As per the liquidity criteria, in a month 50,000 shares, or a value of Rs.5 lakh crore, should be traded.Traditional funds invest primarily in government securities -50% -both state and central, 15% in infrastructure, and the remaining 35% in corporate bonds, equities and other than approved securities.
The regulator wants insurance companies to stay away from investing in companies which have not paid dividend and are financially weak.
Out of the BSE 200 companies, 30 companies have paid less than 10% dividend in the last two years. “We will have to move our investments from approved to other than approved and slowly pare some of the investments,“ said an investment officer of a large life insurance company , who did not wish to be identified. “We will take up the matter to the board.“ Also, insurance companies are not allowed to charge fund management fees on investment in liquid funds, exchange traded funds and fixed deposits of less than 91 days. At present, companies charge FMC of 1.35% on the asset under management.
The regulator has asked companies to close the fund within six months, if the size of the fund is less than Rs.5 crore. They will have to move policyholders to another fund within this period.
“Where any segregated fund invest in either mutual fund, exchange traded fund or bank fixed deposit, for a period less than 91 days at the time of placing the investment, the value of funds invested therein, shall be reduced for computing the fund management charges,“ said Irda in the regulations.
The regulator has said that every insurer shall have a separate fund manager for debt and equity up to a fund size of Rs.10,000 crore for both shareholder and policyholder funds taken together. For a fund size of over Rs.10,000 crore, every fund will need to have separate fund manager for life, pension, annuity and group fund and unit linked.
Business Standard New Delhi,24th August 2016
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