Insurance industry blighted by lack of long-term securities, warns regulator

Unavailability of longer-tenure investment instruments can spell serious trouble for life insurance companies in a few years

The insurance regulator today warned the industry was getting into asset-liability mismatches of varying degrees. Life insurance and pension products, being long-term in nature, need fairly longer tenure investment instruments than what are presently available. Unavailability of such investment instruments can spell trouble for life insurance companies in a few years, warned J Hari Narayan, chairman, Insurance Regulatory and Development Authority (IRDA).

Addressing a FICCI insurance conference here today, the chairman said: “There is a lack of long-term securities in the market, which might impact certain kinds of liabilities. According to our projections, we are getting into an asset-liability mismatch of varying degrees and this is likely to surface in the next four-five years.”

In order to encourage mergers and acquisitions in the insurance space, the regulator is formulating draft guidelines, which are likely to be out by the end of this fiscal year. “Given what is happening in the market, it is an opportune time for mergers and acquisitions. The exposure draft (guidelines) would be ready by March 2009,” the chairman said. As of now, there are no specific guidelines for M&A activity in the insurance sector in the country.

Story continues below this ad

Harinarayan also made a strong pitch for incentivising long-term savings and a relaxed tax regime.

There is no relaxation yet in sight for the solvency margin. “Certain amount of conservatism towards the solvency regime has proved beneficial. It might be imprudent to relax solvency norms in the current situation,” he added.

At present, life insurance companies have to maintain a solvency margin ratio of 150 per cent.