Insurance Regulatory and Development Authority of India

Ref. No: IRDA/F&I/CIR/INV/226/10/2022 | Dated: 27/10/2022

1. INVESTMENT CATEGORIES

1.1 EQUITY

a. Investment in Equity Shares through IPO1

Equity shares offered through IPO, including Offer for Sale, which satisfy all the following criteria, shall be part of “Approved Investments”

1. Equity Shares are being “listed” through IPO

2. The Board of the insurer shall lay down the criteria to be considered before investing in IPOs.

3. Performance track record of the company including Earnings and Dividend record, Dividend Criteria is satisfied for at least two past years as “unlisted” company as IRDAI (Investment) Regulations, in the case of Investee Companies, formed out of ‘de-merger’ of a parent company, issuing shares through IPO, the performance track record would apply with reference to the parent company

4. The Investment in Equity Shares should comply with prudential and exposure norms as prescribed and in particular, Note 7 to Regulation 4 to 8 of IRDAI (Investment) Regulations, 2016 i.e., “actively traded” and “liquid instrument” conditions should be satisfied within 3 months from the date of listing

5. Any investment made in IPOs, which do not satisfy the above conditions, shall fall under ‘Other Investments’

b. Limit for Investment in IPO

The maximum bid amount (and not Margin Money) to be invested in IPO shall be the least of the following:

1. 10% of Subscribed Capital (Face Value) of the Investee Company (including the proposed Equity issue through IPO); or

2. 10% of the ‘Fund’ (Fund shall refer to all Investments under management taken together) of a Life Insurance Company or 10% of the Investment Assets of a General Insurance Company, as the case may be.

c. Securities Lending and Borrowing (SLB) framework2

Insurers are permitted to participate in Securities Lending and Borrowing (SLB) scheme subject to the following

1. The SLB Framework should be governed by the SEBI Cir no. MRD/DoP/SE/Dep/Cir – 14/2007 Dt. 20th Dec, 2007 as amended from time to time. Insurers are permitted to lend through SLB Framework in Equities ONLY

2. The Insurer has to adhere to the Client level and Participant level position limits prescribed by SEBI and stock exchange while undertaking SLB. Insurer can only lend securities to the extent of not more than 10% quantity of those “scrips” of that particular fund(s). These prescribed limits shall be adhered at the time of lending

3. Securities lent in SLB would not be treated as creating encumbrance, charge, hypothecation or lien on such securities

1.2 REPO, REVERSE REPO IN GOVERNMENT SECURITIES AND CORPORATE DEBT SECURITIES

Insurers can undertake Repo/Reverse Repo transactions in Government Securities and Corporate Debt Securities subject to the provisions of Insurance Act, 1938 and the following conditions:

1. In case of Life Insurers, the exposure to reverse repo transactions in Corporate Debt Securities at any point of time shall not exceed 10% of all funds taken together. Further, at individual Segregated Fund level [SFIN], the exposure should not exceed 10% of such fund size [SFIN]. Life Insurers cannot participate in repo transactions.

2. In case of Non-Life Insurers, the exposure to Reverse Repo and Repo transactions in both Government Securities as well as Corporate Bond Securities (taken together) shall not exceed 10% of Investment Assets of the Insurer.

3. Reverse Repo transaction in Govt. Securities will be treated at par with CBLO transactions and the 10% Investment limit, mentioned in points 1 and 2 above, shall not apply to Reverse Repo transaction in Govt. Securities.

4. The underlying corporate debt security in case of Reverse Repo shall be listed and shall have a rating of not less than AA or equivalent.

5. The tenor of Repo transactions shall not exceed a period of six months. While entering into such repo transaction, prior approval of the Investment Committee is mandatory.

6. No Reverse Repo/Repo transactions in Corporate Debt Securities shall be made between the Insurer and entities belonging to its promoter group.

7. The Securities held as collateral in a Reverse Repo, shall not form part of exposure calculations under Regulation 9 of IRDAI (Investment) Regulation, 2016. In Reverse Repo transaction, the exposure shall be on the counterparty.

8. At any point of time these transactions shall be in compliance with Regulation 4, 5, 6, 7 and 8 of the IRDAI (Investment) Regulation, 2016 as amended from time to time and comply with other Guidelines, Circulars issued there under.

1.3 MUTUAL FUNDS (INCL. EXCHANGE TRADED FUNDS – ETFs)

a. Investment in Equity Exchange Traded Funds3

Insurers can invest in Equity ETFs, as a part of Mutual Fund exposure, subject to the following conditions:

1. Only passively managed schemes of the Mutual Funds which are registered with SEBI and governed by SEBI (Mutual Funds) Regulations, 1996, as amended from time to time are eligible. These schemes should be benchmarked and be tracked based on a publicly available Index

2. The total expense ratio shall not exceed 0.50%

3. At least 85% securities in the equity basket shall be compliant with respect to dividend distribution norms as per Regulation 3 (A)(5) of IRDAI (Investment) ,2016 to qualify as a part of “Approved Investment”.4

4. Insurers are required to ensure compliance with the provisions of Sec. 27E of the Insurance Act, 1938 and shall invest only in ETFs which invest in domestic equities

5. These instruments shall be listed on at least one Stock Exchange which has nationwide connectivity terminals

6. In case, the dividend criteria mentioned under point no. 3 is not met by the ETF, such investment shall be automatically re-classified as ‘Other Investment’ category

7. These Investments shall be governed by the exposure norms applicable for Investment in Mutual Funds by Insurers

8. Exposure to stocks through ETF shall not be reckoned for the overall exposure norms prescribed for Individual stocks vide Regulation 9 of IRDAI(Investment) Regulations, 2016 as amended from time to time

b. Investment in GILT Exchange Traded Funds (GILT-ETF) 5

Insurers can invest GILT-ETFs as part of “Approved Investments” which fulfil all the conditions prescribed for investment in Mutual Funds under Gilt/G Sec./Liquid categories and as a part of Mutual Fund exposure

1. The GILT-ETFs shall be issued and managed by the Mutual Funds registered under SEBI (Mutual Funds) Regulations, 1996, as amended from time to time

2. The object of the GILT-ETFs shall be to invest in a basket of Govt. Securities Actively Traded in the market or constituents of a publicly available index

3. The minimum investment by the Insurer shall not be less than Creation Unit Size and shall not be reduced, at any time below Creation Unit Size and value of Creation Unit Size. Such investment at the time of investment, shall not be more than Rs.50 lakhs

4. The Overall Expense Ratio shall not exceed 0.50%

5. Insurers are required to ensure compliance with the provisions of Sec. 27E of the Insurance Act, 1938 and shall ensure that the GILT-ETFs invest only in Domestic Govt. Securities

6. The GILT-ETFs shall be treated at par with GILT/G-SEC Mutual funds and shall adhere to exposure norms applicable to “Investment in Mutual Funds (MFs) by Insurers”.

c. Investment in Mutual Funds6

1. Investment in Gilt, G Sec and Liquid Mutual Funds would form part of ‘Approved Investments’ under IRDAI (Investment) Regulations, 2016 as per guidelines listed below. Hence any Investment made in Debt and Income Mutual Funds, including those which partly invest in Government Securities and Money Market instruments, will fall under ‘Other Investments’, which in turn shall be subject to the limits prescribed in the guidelines issued under IRDAI (Investment) Regulations, 2016, as amended from time to time, along with the norms mentioned below.

2. The investment shall be restricted to schemes of Mutual Funds comprising of Liquid Funds, Gilt, G Sec or Debt and the same shall be governed by the following norms:

a) The Mutual Fund should be registered with SEBI and be governed by SEBI (Mutual Funds) Regulations, 1996

b) Gilt / G Sec / Liquid MFs shall have the same meaning as under SEBI Regulations

c) The insurer shall, as a part of Investment Policy, cover the required diversification among various Mutual Funds to minimize risk

3. Where, the schemes of mutual funds in which investment is made, is managed by an Investment Manager who is under the direct or indirect management or control of the Insurer or its promoter, the same shall not exceed, in the case of Life Insurer, 3% of Life Fund, Pension, Annuity & Group Funds and 5% of Unit Linked Fund and in the case of General Insurers, not more than 5% of Investment Assets

4. The investment in Gilt / G Sec / Liquid /Debt/ Income Mutual Funds (all taken together) at any point of time, shall be as under:

“Investment Assets” as per Regulation 2(i) of IRDAI
(Investment) Regulations, 2016
Percentage to Investment Assets
Less than Rs.50,000 Cr 10%
More than Rs.50000 Crores and Less than Rs.250000 Crores 7%
More than Rs.250000 Crores 5% 7

5. The above limits in the case of Life Insures, will apply to the overall level and at SFIN Level, the maximum exposure shall not exceed 15%.

6. At any point of time, investment in any single Mutual Fund shall not exceed 20% of the total investments in Mutual Funds (all taken together).

d. Investment in Debt ETFs with CPSE Bonds as underlying8

Debt ETFs with underlying Debt Securities of Central Public Sector Enterprises (CPSEs) [herein after referred to as Debt ETFs] are eligible class of Investment, and as a part of “Mutual Fund” exposure.

All Exposure and Prudential Norms applicable for investments in Mutual Funds covered under Para 1.3 of this Master Circular shall apply for investment made in Debt ETFs, in addition to the following conditions:

1. The Debt ETFs shall be issued by Mutual Funds registered with SEBI and governed by SEBI (Mutual Funds) Regulations, 1996, as amended from time to time.

2. The Debt ETF shall invest in a basket of Securities issued by CPSEs which are part of constituents of a publicly
available index.

3. The minimum investment by the Insurer shall not be less than Creation Unit size and it shall not be reduced to below Creation Unit Size.

4. “All” Securities in the Index shall be complied with rating criteria as per Regulation 3 of IRDAI (Investment) Regulations, 2016 for it to part of “Approved Investment”. If any of the underlying securities gets downgraded below “AA”, the Debt ETF shall be automatically reclassified under “Other Investment”.

1.4 INVESTMENT IN ASSET BACKED SECURITIES (ABS), PASS THROUGH CERTIFICATES (PTCs) AND SECURITY RECEIPTS (SRs)

1. Insurers are permitted to invest in Asset Backed Securities (ABS) / Pass Through Certificates (PTCs) with underlying Housing and / or Infrastructure assets [as defined under Regulation 2(h) of IRDAI (Investment) Regulations, 2016, as amended from time to time].

2. Investment in Asset Backed Securities (ABS) / Pass Through Certificates (PTCs) / Security Receipts (SRs) with underlying Housing and / or Infrastructure Assets, shall form part of “Approved Investments”, subject to following exposure and prudential norms:

a) ABS / PTC /SR must be rated not less than AAA or equivalent by a Credit Rating Agency, registered under SEBI (Credit Rating Agencies) Regulations, 1999

b) The investment in ABS / PTC / SR with underlying Housing and / or Infrastructure assets shall at ‘all times’ not exceed 10% of respective fund(s) in the case of Life Insurers and not more than 5% of Investment Assets in the case of General Insurers

3. If the ABS / PTC / SR with underlying Housing and / or Infrastructure assets are downgraded below AAA such investment shall be automatically be re-classified as “Other Investments”.

4. In case the cash-flows from such instrument are not received on due dates, the investment in such assets shall be automatically be re-classified as “Other Investments” from such date for reporting in FORM 3A (Part A) / FORM 3B of IRDAI (Investment) Regulations, 2016

5. The investments in securitized assets, both under Approved and Other Investments, taken together shall not exceed 10% of respective fund size in the case of Life Insurers and not more than 5% of Investment Assets in the case of General Insurers.

6. The Insurer, as a part of risk management, shall split the investment in ABS, PTCs and SRs over different issuers and tenures

7. All guidelines of Classification, Income Recognition and Valuation of Assets issued by the Authority shall be applicable to these investments.

Read Full text of the Master Circular IRDA (Investment) Regulations, 2016

Notes: 

1IRDA /CIR/INV/020/2008-09 Dt. 22nd Aug 2008

2IRDA/F&I/CIR/INV/134/2013 Dt. 12th July 2013

3IRDA/F&I/CIR/INV/074/03/2014 Dt. 03rd Mar, 2014

4 IRDAI/F&I/CIR/INV/165/8/2022 Dt.03rd Aug, 2022

5IRDA/F&I/CIR/INV/156/08/2015 Dt. 28th Aug, 2015

6IRDA/CIR/INV/020/2008-09 Dt 22nd Aug 2008

7 IRDAI/F&I/CIR/INV165/8/2022 Dt.3rd August, 2022

8 IRDA/F&I/CIR/INV/222/12/2019 Dt11th Dec,2019

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