IRDA Regulation for Investment

1. Short title and commencement
2. Definitions
3. Regulation of Investments

• Life Business

• Pension and General Annuity Business

• Unit Linked Life Insurance Business

4. Regulation of Investments

• General Business

• Reinsurance Business

5. Exposure/Prudential norms
6. Returns to be submitted by an Insurer
7. Power to call for additional information
8. Duty to report extraordinary events affecting the investment portfolio
9. Constitution of Investment Committee
10. Miscellaneous

11. Dealing in financial derivatives

In exercise of the powers conferred by sections 27A, 27B, 27D and 114A of the Insurance Act, 1938 (4 of 1938), the Authority in consultation with the Insurance Advisory Committee, hereby makes the following regulations, namely--

1. Short title and commencement

(1) These regulations may be called the Insurance Regulatory and Development Authority (Investment) Regulations, 2000.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. Definitions

In these regulations, unless the context otherwise requires,--

(a)        "Act" means the Insurance Act, 1938 (4 of 1938);

(b)        "Accretion of funds" means investment income, gains on sale/redemption of existing investment and operating surplus;

(ba)       "Assets" means all the assets of insurer, at their carrying value, shown in his Balance Sheet drawn in Form B-BL of the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors' Report of Insurance Companies) Regulations, 2000, but excluding items under the head "Miscellaneous Expenditure";

(c)        "Authority" means the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999);

(ca)       "Group" means:

(i) two or more individuals, associations of individuals, firms, trusts, trustees or bodies corporate (excluding Financial Institutions) or any combination thereof, which exercises, or is established to be in a position to exercise, control, directly or indirectly, over any body corporate, firm or trust, or

(ii) Associated persons,

as may be stipulated by the Authority, from time to time, by issuance of guidelines in this behalf;

(cb)       "Financial Derivatives" means a derivative as defined under clause (aa) of section 2 of the Securities Contracts (Regulation) Act, 1956, and includes a contract which derives its value from interest rates of underlying debt securities and such other derivative contracts as may be stipulated by the Authority, from time to time;]

(d) "Principal Officer" means any person connected with the management of an insurer or any other person upon whom the Authority has served notice of its intention of treating him as the principal officer thereof;

(e)        All words and expressions used herein and not defined but defined in the Insurance Act, 1938 (4 of 1938), or in the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), or in any rules or regulations made thereunder, shall have the meanings respectively assigned to them in those Acts or rules or regulations.

3. Regulation of Investments

(1) Life Business: In terms of Explanation in section 27A of the Act, the Authority has determined that assets relating to Pension business, Annuity business and Linked Life Insurance business shall not form part of the Controlled Fund for the purpose of that section.

Without prejudice to section 27 or section 27A of the Act, every insurer carrying on the business of life insurance shall invest and at all times keep invested his controlled fund (other than funds relating to pension and general annuity business and unit linked life insurance business) in the following manner:

(2) `Pension and General Annuity Business' : Every insurer shall invest and at all times keep invested funds belonging to his Pension Business, General Annuity Business in the following manner:

Note : For the purposes of this sub-regulation, no unapproved investments shall be made.

(3) Unit Linked Life Insurance Business : Every insurer shall invest and at all times keep invested his segregated fund of unit linked life insurance business as per pattern of investment offered to and approved by the policy-holders.  Unit Linked policies may only be offered where the units are linked to categories of assets which are both marketable and easily realizable. However, the total investment in other than approved category of investments shall at no time exceed 25% of the fund.

4. Regulation of Investments

(1) General Business : Without prejudice to section 27 or section 27B of the Act, every insurer carrying on the business of general insurance shall invest and at all times keep invested his total assets in the manner set out below:

(2) Reinsurance Business : Every reinsurer carrying on reinsurance business in India shall invest and at all times keep invested his total assets in the same manner as set out in sub-regulation (1), until such time separate regulations in this behalf are made by the Authority.

Note : For the purpose of regulations 3 and 4:

1.         Every insurer shall endeavour to maintain a proper balance between the investments made in infrastructure sector and those in the social sector, Bonds issued for development of these sectors, duly guaranteed by Government or otherwise rated not less than "AA" by independent, reputed and recognised rating agencies, issued by others would qualify for compliance of this regulation.

2.         All investments in assets/instruments, which are capable of being rated as per market practice, be based on rating to such assets/instruments.

3.         The rating should be by an independent, reputed and recognised Indian or foreign rating agency.

4.         The assets/instruments under consideration for investment, shall be of a grade not less than "AA" of investment grade as per their current rating.  In case investments of this grade are not available to meet the investment requirements of the investing insurance company and investment committee of the investing insurance company is fully satisfied about the same, then, for the reasons to be recorded in the investment committee's minutes, the investment committee may approve investment in instruments carrying current rating of not less than +A.  Investments in the +A to be kept to the minimum.

5.         The rating of Debt Instruments issued by All India Financial Institutions recognised as such by RBI may be of `AAA' or equivalent rating.  In case investments of this grade are not available to meet the requirements of the investing insurance company and investment committee of the investing insurance company is fully satisfied about the same, then, for the reasons to be recorded in the investment committee's minutes, the investment committee may approve investments in instruments carrying current rating of not less than 'AA' or equivalent as rated by an independent, reputed and recognised Indian or foreign rating agency.

6.         No investment shall be made in an asset/instrument, which is capable of being rated as per market practice but has not been rated.

7.         Investments in equity shares listed on a registered stock exchange should be made in actively traded and liquid instruments viz., equity shares other than those classified as thinly traded as per guidelines governing mutual funds issued by SEBI from time to time.

5. Exposure/Prudential norms

Without prejudice to anything contained in sections 27A and 27B of the Act, every insurer shall limit his investments based on the following exposure norms:

Notes :

1.         Subject to exposure limits as per Insurance Act, 1938, investment in equity including preference shares, investment in equity convertible part of debentures should not exceed 50% of the above exposure norms as mentioned in the Table.  A similar 50% of exposure norms limit would also apply to investment in immovable property.

2.         Subject to exposure limits mentioned in the Table above, an Insurer shall not have investments of more than 5% in aggregate of its Controlled funds  in the case of a life insurer or 5% in aggregate of its assets in the case of non-life insurer in the companies belonging to the promoters' groups.  For the purposes of this regulation "group" shall have the same meaning as defined under these regulations.  All investments in this category shall specifically be referred to the Authority.

3.         The percentage of 10 per cent of the total assets in the case of non-life insurers and 10 per cent of the controlled funds in the case of life insurers can be raised to 15 per cent in each case subject to specific approval of IRDA.

4.         In the case of existing insurers : The limits mentioned above as applicable to the Indian Insurance Companies, shall stand modified as under:--

(a) exposure at any point of time not to exceed 20 per cent of the subscribed share capital, free reserves and debentures/bonds of the investee company or 5 per cent of the controlled funds of the life insurer or 10 percent of the general insurers' total assets.

(b) The limit prescribed in respect of exposure to the industrial sector shall stand increased to 20 per cent in the case of investments in financial institutions.

6. Returns to be submitted by an Insurer

Every insurer shall submit to the Authority the following returns within such time, at such intervals and verified/certified in such manner as indicated thereagainst.

7. Power to call for additional information

The Authority may, by general or special order, require from the insurers such other information in such manner, intervals and time limit as may be specified therein.

8. Duty to report extraordinary events affecting the investment portfolio

Every insurer shall report to the Authority forthwith, the effect or the probable effect of any event coming to his knowledge, which could have material adverse impact on the investment portfolio and consequently on the security of policy - holder benefits or expectations.

9. Constitution of Investment Committee

(1) Every insurer shall constitute an Investment Committee which shall consist of a minimum of two non-executive Directors of the Insurer, the Principal Officer, Chiefs of Finance and Investment divisions, and wherever appointed actuary is employed, the Appointed Actuary.  The Decisions taken by the Investment Committee shall be properly recorded and be open to inspection by the officers of the Authority.

(2) Every insurer shall draw up annually an Investment Policy and place the same before its Board of Directors for its approval.  In framing such a policy, the Board will be guided by--

(i)         issues relating to liquidity, prudential norms, exposure limits, stop loss limits in securities trading, management of all investment and market risks, management of assets liabilities mismatch, investment audits and investments statistics, etc. and the provisions of the Insurance Act, 1938 and Insurance Regulatory and Development Authority (Investment) Regulations, 2000;

(ii)         ensuring an adequate return on policy holders' and shareholders' funds consistent with the protection, safety and liquidity of such funds;

(iii)        the funds of the insurer shall be invested and continued to be invested in equity shares, preference shares and instruments which enjoy a rating referred to in note below regulation 4 and made by a national/international agency; in the absence of a rating for an asset, the Board shall lay down clearly the norms that will be followed by the investment committee which will ensure that the safety and liquidity of the policy holders' funds are assured.

(3) The investment policy as approved by the Board will be implemented by the investment committee, which shall keep the Board informed periodically about its activities.

(4) The Board shall review its investment policy and its implementation on an half-yearly basis or at such short intervals as it may decide and make such modifications in its existing investment policy as are necessary to bring them in tune with the requirements of law and regulations - in regard to protection of policy holders' interest and pattern of investment laid down.

(5) The details of the Investment Policy or its review as periodically decided by the Board shall be submitted to the Authority within 30 days of its decision thereto.  The Authority may call for further information from time to time from the insurer as it deems necessary and in the interest of policy holders issue such directions to the insurers as it thinks fit.

10. Miscellaneous

(1) Valuation of Assets and Accounting of Investments shall be as per the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2000.

(2) The Authority may, by any general or special order, modify or change the application of sub-regulations (3), (4), (5) and (6) to any insurer either on its own or on an application made to it.

11. Dealing in financial derivatives

(1) Every Insurer carrying on the business of life insurance or general insurance may deal in financial derivatives only to the extent permitted and in accordance with the guidelines issued by the Authority in this regard from time to time.

(2) Any margin or unamortized premium paid by any insurer in connection with the financial derivatives to the extent they are reflected as asset position in the Balance Sheet of the Insurer in accordance with the guidelines issued by the Authority, shall be treated as "Approved Investment" under Schedule I and Schedule II to these regulations, only to the extent the derivatives position constitutes a hedge for the underlying investment or portfolio which itself is treated as an approved investment under these regulations.  All other margin or unamortized premium paid, to the extent reflected in the Balance Sheet of the Insurer in accordance with the guidelines issued by the Authority in this regard from time to time, shall be treated as "other than Approved Investments".

SCHEDULE I

(Refer regulation 3)

LIST OF APPROVED INVESTMENTS FOR LIFE BUSINESS

`Approved Investments' for the purposes of section 27A of the Act shall be as follows:

(a)        All approved investments specified in section 27A of the Act except--

(i) clause (b) of sub-section (1) of section 27A of the Act;

(ii) first mortgages on immovable property situated in other country as stated in clause (m) of sub-section (1) of section 27A of the Act;

(iii) immovable property situated in other country as stated in clause (n) of sub-section (1) of section 27A of the Act.

(b)        In addition the authority under powers given vide clause (s) of sub-section (1) of section 27A of the Act declares the following investments as approved investments:

(i) All secured loans, secured debentures, secured bonds, other secured debt instruments, shares and preference shares and debt instruments issued by All India Financial Institutions recognised as such by Reserve Bank of India - investments to be made in terms of investment policy guidelines, benchmarks and exposure norms/limits approved by the Board of Directors of the insurer.

(ii) Subject to norms/limits approved by the Board of Directors of the insurers deposits with banks (e.g. in current account, call deposits, notice deposits, certificate of deposits etc.) included for the time being in the Second Schedule to Reserve Bank of India Act, 1934 (2 of 1934) and deposits with Primary Dealers duly recognised by Reserve Bank of India as such.

(iia) Collateralised Borrowing and Lending Obligation (CBLO) created by the Clearing Corporation of India Limited and recognised by the Reserve Bank of India as a money market instrument/investment.

(iii) Commercial papers issued by a company or All India Financial Institutions recognised as such by Reserve Bank of India having a rating by a reputed and independent rating agency under the category of `very strong' or more.

(iv) Treasury Bills issued by RBI, Inter-Bank Repos of RBI and Bills Rediscounting.

Explanation :

1.         Any investment in the short or medium or long-term loans or deposits with private limited companies shall not be treated as `approved investments'.

2.         All conditions mentioned in the 'note' applicable to regulations 3 and 4 are to be complied with.

SCHEDULE II

(Refer regulation 4)

LIST OF APPROVED INVESTMENTS FOR GENRAL BUSINESS

`Approved Investments' for the purpose of section 27B of the Act shall be as follows:

(a)        All approved investments specified in section 27B of the Act except--

(i) clause (b) of sub-section (1) of section 27A of the Act;

(ii) immovable property situated in other country as stated in clause (n) of sub-section (1) of section 27A of the Act;

(iii) first mortgages on immovable property situated in other country as stated in clause (i) of sub-section (1) of section 27B of the Act.

(b)        In addition the authority under powers given vide clause (j) of sub-section (1) of section 27B of the Act declares the following investments as approved investments:

(i) All secured loans, secured debentures, secured bonds, other secured debt instruments, shares and preference shares and debt instruments issued by All India financial institutions recognised as such by Reserve Bank of India-investments to be made in terms of investment policy guidelines, benchmarks and exposure norms/limits approved by the Board of Directors of an insurer.

(ii) Subject to norms/limits approved by the Board of Directors of the insurers deposits with banks (e.g., in current account, call deposits, notice deposits, term deposits, certificate of deposits etc.) included for the time being in the Second Schedule to Reserve Bank of India Act, 1934 (2 of 1934) and deposits with Primary Dealers duly recognised by Reserve Bank of India as such.

(iia) Collateralised Borrowing and Lending Obligation (CBLO) created by the Clearing Corporation of India Limited and recognised by the Reserve Bank of India as a money market instrument/investment.

(iii) Commercial papers issued by a company or All India Financial Institutions recognised as such by Reserve Bank of India having a 'very strong' or more rating by a reputed and independent rating agency.

(iv) Treasury Bills issued by RBI, Inter-Bank Repos of RBI and Bills Rediscounting.

Explanation :

1.         Any investment in the short or medium or long-term loans or deposits with private limited companies shall not be treated as 'approved investments'.

2.         All conditions mentioned in the `note' applicable to regulations 3 and 4 are to be complied with.

SCHEDULE III

[x x x]

FORM 1

STATEMENT OF INVESTMENT AND INCOME ON INVESTMENT

Periodicity of Submission : Yearly

Company Name & Code:

Statement as on: .................

CERTIFICATION

Certified that the information given herein are correct and complete to the best of my knowledge and belief and nothing has been concealed or suppressed.

Date :

Signature.......................

Full Name & Designation

Note : Category of investment shall be as per guidelines

1.         To be calculated as prescribed in IRDA (Actuarial Report) Regulations, 2000 under section 3(1) on an annualised basis.

2.         Yield netted for tax.

3.         In the case of Life Insurance Business Form 1 shall be prepared in respect of each fund.

FORM 2

STATEMENT OF DOWN GRADED INVESTMENT

Periodicity of Submission : Quarterly

Company Name & Code:

Name of the Fund: .................

Statement as on:

Rs. in lakhs                

CERTIFICATION

Certified that the information given herein are correct and complete to the best of my knowledge and belief and nothing has been concealed or suppressed.

Date :

Signature .....................

Full Name & Designation

Note :

1.        Provide details of Down Graded Investments during the quarter.

2.        Provide details of Down Graded Investments as on the reporting date.

3.         Investments currently upgraded, which were listed as Down Graded during earlier quarter shall be deleted from the Cumulative listing.

4.         In the case of Life Insurance Business, Form-2 shall be prepared in respect of each fund.

5.        "Cat. Code" shall be as per guidelines.

FORM 3A

PART A

Company Name & Code:

Statement as on :

STATEMENT OF INVESTMENT ASSETS

(Business within India)

Periodicity of Submission : Quarterly

Rs. in lakhs       

CERTIFICATION

Certified that the information given herein are correct and complete to the best of my knowledge and belief and nothing has been concealed or suppressed.

Signature ...........................

Date :

Full Name & Designation

Note : Form 3A (Part A) shall be linked to the Balance Sheet on the Balance Sheet date for which a detailed working shall be separately attached.

PART B

STATEMENT OF NON-INVESTMENT ASSETS

(Business within India)

Periodicity of Submission : Quarterly

Company Name and Code :

Statement as on :

Rs. in lakhs

CERTIFICATION

Certified that the information given herein are correct and complete to the best of my knowledge and belief and nothing has been concealed or suppressed.

Signature .....................

Date :

Full Name & Designation

Note : Break-up of individual items under each of the above heads shall be provided as Schedule and its reference be mentioned under "Sch. Ref."

FORM 3B

PART A

Company Name and Code:

Statement as on :

STATEMENT OF INVESTMENT ASSETS

(Business within India)

Periodicity of Submission : Quarterly

Rs. in lakhs

CERTIFICATION

Certified that the information given herein are correct and complete to the best of my knowledge and belief and nothing has been concealed or suppressed.

Signature ...........................

Date :

Full Name & Designation

Note : Form 3B (Part A) shall be linked to the Balance Sheet on the Balance Sheet date for which a detailed working shall be separately attached.

PART B

STATEMENT OF NON-INVESTMENT ASSETS

(Business within India)

Periodicity of Submission : Quarterly

Company Name and Code :

Statement as on :

Rs. in lakhs

CERTIFICATION

Certified that the information given herein are correct and complete to the best of my knowledge and belief and nothing has been concealed or suppressed.

Signature ...........................

Date :

Full Name & Designation

Note : Break-up of individual items under each of the above heads shall be provided as Schedule and its reference be mentioned under "Sch. Ref.".

FORM 3C

Company Name & Code :

Statement as on :

EXCEPTIONAL INVESTMENTS CAPABLE OF BEING RATED AND COMPLYING WITH "AA" GRADE AND IN CASE

OF DEBT INSTRUMENTS ISSUED BY ALL INDIA FINANCIAL INSTITUTIONS, NOT COMPLYING

WITH "AAA" GRADE - COMPLIANCE REPORT

Periodicity of Submission : Quarterly

A. Life Fund 

Rs. in lakhs

CERTIFICATION

Certified that the information given herein are correct and complete to the best of my knowledge and belief and nothing has been concealed or suppressed.

Date : 

Signature ....................

Note : "Cat. Code" shall be as per guidelines.

FORM 4

Company Name and Code :

Statement Date : As at .......

EXPOSURE NORMS COMPLIANCE REPORT TO BE SUBMITTED YEARLY

Type of investment includes :

(a) All investments in Equity/Preference Shares of the Company

(b) Debentures (Convertible/Partly convertible/Non-convertible)

(c) Short/Medium/Long-term loans

(d) Any other permitted investments as per the Act/Regulation

EXPOSURE NORMS

CERTIFICATION

Certified that the information given herein are correct and complete to the best of my knowledge and belief and nothing has been concealed or suppressed.

Date : .......

Signature : ..................

FORM 4A

Company Name & Code :

Statement as on :

Name of the fund :..................

STATEMENT OF INVESTMENTS SUBJECT TO EXPOSURE NORMS

Periodicity of Submission : Yearly

CERTIFICATION

Certified that the information given herein are correct and complete to the best of my knowledge and belief and nothing has been concealed or suppressed.

Signature .....................

Date : 

Full Name & Designation

Note : 1. In the case of Life Insurance Business Form 4A shall be prepared in respect of each fund.

FORM 5

Company Name & Code :
Statement as on :

Name of the Fund : ...........

STATEMENT OF INVESTMENT RECONCILIATION

(Business within India)

Periodicity of Submission : Quarterly

Rs. in lakhs

CERTIFICATION

Certified that the information given herein are correct and complete to the best of my knowledge and belief and nothing has been concealed or suppressed.

Date:

Signature.....................

Notes :

A.         Individual Categories under each of the above major heads should be listed.

B.         In the case of Life Insurance Business Form 5 shall be prepared in respect of each fund.

C.         Transaction details of all figures appearing in the Adjustment Column should be provided as an Annexure to this Statement.

D.         Each sub-total of Form 5 shall be linked to its corresponding head in Part-A of Form 3A, Form 3B.

E.         "Cat. Code" shall be as per Guidelines.

FORM 5A

Company Name & Code

Statement as on : 

STATEMENT OF MUTUAL FUND INVESTMENTS

PERIODICITY OF SUBMISSION : QUARTERLY

Rs. in lakhs

CERTIFICATION

Certified that the information given herein are correct and complete to the best of my knowledge and belief and nothing has been concealed or suppressed.

Date 

Signature .....................

Full Name & Designation

Notes :

A.         Item-Other-MF will be applicable for Mutual Fund Investments made prior to Circular No. IRDA Cir. INV 007 2002-03, dt. 26-2-2003.

B.         In the case of Life Insurance Business Form 5A shall be prepared in respect of each fund.

C.         Each sub-total of Form 5A shall be linked to its corresponding head in Form 5.

FORM 6

Company Name and Code:

Name of the Fund .........

Statement as on :          

CERTIFICATE UNDER SECTION 28(2A)/28(2B)/28B(3)
OF THE INSURANCE ACT, 1938

Periodicity of Submission : Quarte

               Under the Custody of                                Rs. in lakhs

We certify that the abovementioned securities are held free of any encumbrance charge hypothecation or lien as on the above date.

Note :

Value of the Securities to be shown at Carrying Cost on the above date.

*Reconciliation statement shall be attached for explaining the difference between Books and Custodian/Others Certificate.

1. In the case of Life Insurance Business Form 6 shall be prepared in respect of each fund.

FORM 7

CONFIRMATION OF INVESTMENT PORTFOLIO DETALLS

Periodicity of Submission : Quarterly

CERTIFICATION

Certified that the information given herein are correct and complete to the best of my knowledge and belief and nothing has been concealed or suppressed.

Signature ......................

Date :

Full Name & Designation

Note : If any of the confirmation is in the affirmative, details be provided.