Terming the finance ministry’s plans to hike the investment ceiling for state-owned Life Insurance Corporation to 30 per cent as ‘imprudent’, insurance regulator Irda on Monday called for a more conservative approach and ruled out hiking the cap for private sector insurance firms.
“Generally investment, which are proposed, are much higher than what is there in the Insurance Act and the level of exposure, which they (government) had suggested was very high. It is about the level venture capital companies were investing as per SEBI norms,” Insurance Regulatory and Development Authority (Irda) chairman J Hari Narayan said on the sidelines of a Health Insurance conference organised by Ficci.
“The question is whether insurance investment must be as aggressive as venture capitalist. I think not. I think insurance companies must be more conservative in their approach,” he said.
While the Insurance Act limits investments by insurance firms into any company at 10 per cent of the fund or 10 per cent of the stake, whichever is lower, the finance ministry has recently raised investment limit for LIC to 30 per cent of the paid-up capital in a company.
Hari Narayan also ruled out permitting private sector insurers to invest beyond the mandated ceiling as it would be ‘very imprudent.’
Asked if the regulator would permit private sector insurers to invest beyond 10 per cent ceiling if the government notifies increase in investment exposure for LIC to 30 per cent, Hari Narayan said, “No, certainly not. I think it’s very very imprudent.”
“Once a firm has 30 per cent exposure in another firm, the takeover code kicks in. If you buy 30 per cent then the company will be compelled to purchase another 20 per cent. So, in no time, it will be owing 50 per cent of the company. In which case insurance companies are supposed to own some companies. Then it will be running some steel companies,” the IRDA chairman pointed out, adding that it may be useful for venture capital firms who are aggressive investors. “Would it be wise thing to do for the insurance companies? The way I think is insurance and pension