Life insurers may soon invest in infra SPVs

To avoid an asset-liability mismatch in the life insurance space,the regulator is chalking out ways to expand the ambit of long-term investment vehicles for the industry.

To avoid an asset-liability mismatch in the life insurance space,the regulator is chalking out ways to expand the ambit of long-term investment vehicles for the industry. The Insurance Regulatory and Development Authority (IRDA) is working out norms to allow life insurers to invest in special purpose vehicles (SPVs) of infrastructure companies, officials in the ministry of finance told The Indian Express.

As per the current investment guidelines,life insurers can invest only in the infrastructure companies or rated entities and not in the SPVs set up by them. The move,therefore,will ensure greater funds for infrastructure projects in the country and also provide a long-term investment vehicle for insurers. The reason is that the concession period for infrastructure projects such as roads and ports can go up to 30 years providing the life insurance companies a long-term investment option. Even though the construction period may be limited to three-five years,the operation and maintenance costs run up to the end of the period.

The move assumes greater significance in the light of the asset-liability mismatches that the regulator foresees in the industry. Life insurance business has long-term liabilities. However,there are not many investment instruments of tenures more than 20 years that are available in the markets. Some long-term tools that are available to the industry are 10-year corporate bonds,30-year government securities,etc. According to data available with the Clearing Corporation of India,life insurance companies invest heavily in 30-year paper and very less in corporate bonds.

Though insurers review their portfolios frequently to keep in check any mismatches,the regulator a few months back had voiced some concerns on this front. We are getting into an asset-liability mismatch of varying degrees and this is likely to surface in the next four-five years, IRDA chairman J Hari Narayan had said at a conference in Delhi. According to finance ministry officials,IRDA will also issue guidelines for credit rating agencies and investment will be allowed only in rated SPVs.

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