Insurance regulator IRDA today came out with three draft guidelines with a view to giving greater freedom to life and non-life insurance companies to participate in money market operations. The draft guidelines pertain to participation of insurers in repo (borrowing) and reverse-repo (lending) operations in government securities and corporate debts,Corporate Default Swaps and Securities Lending and Borrowing (CLB) Schemes. The Insurance Regulatory and Development Authority (IRDA) has invited comments of stakeholder within 15 days on these guidelines,which are expected to help insurers earn money money from treasury operations. These draft guidelines require the insurers to put in place risk management mechanism and formulate policies for undertaking such investments. As per the draft norms pertaining to repo and reverse operations,IRDA said the exposure of a life insurance company in the reverse-repo (lending) in corporate debt securities should be restricted to 10 per cent of the controlled funds. In case of non-life insurance companies the limit in reverse and reverse-repo operations has been pegged at 10 per cent of investment assets. The tenure of repo transactions,it added,will be for a period of 180 days,with the prior approval of the investment committee of the insurance company. The IRDA further said that insurance companies would be allowed to undertake repo and reverse operations only in AAA- rated corporate debt securities. As a matter of caution,the IRDA has clarified that insurers will not be permitted to undertake such operations in debts of promoter group companies. The boards of insurers,it added,would be required to incorporate necessary guidelines in their Investment Policies. These should pertain to credit rating,exposure and tenor of collaterals. As regards participation of insurers in the Securities Lending and Borrowing (SLB) operations,the draft norms said insurers would be permitted to "lend only up to 10 per cent of their total equity holdings" in such operations. "Equities lent in SLB would not be treated as if the insurer owned such equities and all benefits arising on such equities shall be available to the insurer i.e. the beneficial rights of the insurer shall continue," it said. The board,the draft added,would have to amend its Investment Policy and put in place adequate Risk Management framework on SLBs. IRDA also proposed that insurers could participate in Credit Default Swaps (CDS) on Corporate Bonds market as "users" (protection buyers). "The CDS would be permitted as a 'hedge' to manage Credit Risk. mandatory rating for both the issuing company and the Referenced Entity shall be prescribed by the board of the insurers," it said. It added that no CDS transaction could take place between entities of the same promoter group. Besides,it directed that "All CDS transactions shall be reported to the Investment Committee,Audit Committee and to the Board on a Quarterly periodicity".
