Raising the investment limit of insurers to 30 per cent of the paid-up capital of a company would be an “imprudent” move, cautioned insurance regulator IRDA.

Pegging the investment limit at 30 per cent would lead to insurance companies behaving like venture capital undertakings, which would not be warranted, according to IRDA Chairman, J. Harinarayan.

“The question is whether insurance investment must be as aggressive as venture capital companies.

“I think not. Insurance companies must be conservative in their approach”, Harinarayan said on the sidelines of a FICCI Health Insurance conference in the Capital.

The Government has circulated a draft that seeks to increase investment limit of Life Insurance Corporation from the current 10 per cent to 30 per cent of the paid-up capital of the investee company.

“The level suggested in the draft is very high. These are the levels at which venture capital companies invest as per SEBI norms”, he said, adding that raising investment limit to 30 per cent would also raise issues on SEBI takeover code.

Acquiring a 25 per cent stake in a company would trigger open offer obligations for the insurance companies, resulting in their taking controlling interest.

Insurance companies should not be in the business of running companies, he indicated.

Harinarayan also said that even at the current level of 10 per cent, there was enough room for insurance companies to invest.

Asked if IRDA will allow private insurers to invest higher than the 10 per cent level if the LIC’s investment limit were to be raised to 30 per cent, he replied in the negative. “No certainly not, I think it is very very imprudent”.

Demands tax breaks for pension products

The suggested that a separate bucket be introduced in the income-tax law to provide for tax breaks on investments in insurance policies.

This would encourage citizens to buy more insurance products, IRDA Chairman Harinarayan said when asked about his Budget wish-list.

He also said that the current provision in income-tax law that exempts the sum received under a life insurance policy should be extended for long-term insurance policies as well.

On pension products, Harinarayan suggested that pension products approved by IRDA should be given the same tax breaks as currently available under the new pension system (NPS).

Srivats.kr@thehindu.co.in

(This article was published on December 10, 2012)
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