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Monday, September 10, 2012

Finance ministry wants Irda to double insurers' equity play limit

The finance ministry is coaxing the insurance regulator to double insurers' equity exposure limit in a company, ostensibly to make disinvestment a success without drawing criticism that state-run entities violate prudential measures to bail out the government.

The demand, if accepted by the Insurance Regulatory and Development Authority (Irda), will increase the risk for insurance companies, especially Life Insurance Corporation, which has breached the limit in many state-owned companies. Officials from the ministry have been lobbying the regulator to raise the stake an insurance firm can own in a company to 20% from 10%, said two people familiar with the matter. While LIC itself has been demanding such an increase, the regulator had in the past turned it down, citing risk.

"We have set up a committee to examine the issue," said J Hari Narayan, chairman, Irda. "In my view, 20% is just asking for trouble. Risk is to be looked at and LIC is ultimately an important financial institution. The focus of the insurer is not to expose it to risk, but provide stable return. If policyholders are looking for only equity-linked return, they will go to mutual funds." Although Irda has been averse to doubling the equity exposure limit, there could be a compromise, with it raising the limit to 15%, with some riders, said the aforementioned people, who did not want to be identified.

"There will be a concentration of risk, though it is not going to be relevant for us," said Prashant Tripathy, director and chief financial officer at insurer Max Life, a joint venture between Max and Japan's Mitsui Sumitomo.

Source: EconomicTimes


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