Page 9 - Insurance Times April 2017 Special Issue on Newindia

IRDAI nods to Reits and InvITs IRDAI demands demat
The Insurance Regulatory and Development Authority of India (IRDAI) has format in issuing insur-
cleared investment by insurance companies in Real Estate
Investment Trusts (Reits) and Infrastructure Investment ance policies
Trusts (InvITs), thus making an important breakthrough for The Insurance Regulatory and Devel-
the sponsors. opment Authority of India (IRDAI) is
Insurance companies are allowed to buy into commercial mulling to ask life insurers to issue
real estate, and letting them invest in Reits is expected to deepen the commer- policies only in a dematerialized
cial property market, according to experts. In a circular IRDAI said an insurer (demat) format beyond a specified
could invest not more than 3 per cent of its fund size or in not more than 5 per threshold premium.
cent of the units issued by a single Reit/InvIT, whichever is lower. This rule will be made applicable to
IRDAI has said that no investment will be made in a Reit/ InvIT in which the all insurance contracts, both for ex-
sponsor is under the promoter group of the insurer. It also said that the Reit/ isting and new customers, including
InvIT rated not less than AA would form part of approved investments. executives from insurance reposito-
ries, insurance companies and a
“Since insurance companies are one of the major subscribers of Reits globally, regulatory official.
IRDAI's move will help those floating a Reit," said senior executive of a real estate
company planning to float a Reit. India's insurance sector is the biggest
in the world in terms of the number
IRDAI wants active participation in general meetings of policies-about 360 million are in
IRDAI has requested the companies to participate actively in the general meet- force. This number is expected to
ings of investee companies and engage with the management increase at an annual average of 12-
at a greater level to improve governance so as to increase re- 15% over the next five years, accord-
turns on investments for insurers. ing to the India Brand Equity Foun-
dation, a government trust under
"Insurance companies are significant institutional investors in the department of commerce.
listed companies and the investments are held by them as cus-
todians of policyholders," Insurance Regulatory and Develop- IRDAI fines ICICI Pruden-
ment Authority (IRDAI) stated in a circular.
tial Life of Rs 20 lakh
The regulator said the state of governance at the companies where insurance
companies have invested is important. It has also laid out a set of principles, IRDAI has cracked the whip on ICICI
which insurers will have to adopt. The principles are being uniformly adopted Prudential Life by
for institutional investors like mutual fund, pension funds, foreign portfolio in- fining Rs 20 lakh.
vestors and alternate investment funds. The insurer in a
regulatory filing
IRDAI asks insurers to disclose voting policy publicly said that IRDAI
had conducted an
Insurance companies, including LIC, will now have to publicly disclose their vot-
ing policy on resolutions in companies, where they hold onsite inspection of the company in
stakes. IRDAI has asked companies to exercise their "in- December 2013. The Authority
dependent judgement" and not to automatically sup- (IRDAI) raised certain observations
port the proposals made by the board of the investee which were followed by a show-
company. cause notice, the company said.
The directives notified are part of the Insurance Regu- "After considering the submission (by
latory and Development Authority of India's guidelines on 'stewardship code' the company), the Authority has lev-
for insurance companies. The code is aimed at providing insurance companies a ied a penalty on few of the observa-
framework for using their power as institutional investors. The new directive is tions, totaling to Rs 20 lakh," ICICI
significant considering that the LIC played a significant role in recent boardroom Prudential Life said.
battle involving the Tatas and former group chairman Cyrus Mistry. However, the counts on which

"For issues that require larger engagement with the investee company, insur- charges were pressed against the
ers may choose to act collectively with other institutional investors in order to company could not be ascertained, as
safeguard the interests of their investors. For such situations, insurers should IRDAI is yet to issue the circular re-
have a policy to guide their actions and extent of engagement," IRDAI said. garding this.

The Insurance Times, April 2017 9

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