Page 49 - The Insurance Times April 2025

Feature

Govt weighs 50-yr bonds to deepen insurance

market

T he Indian government may consider issuing 50-year on- long-term investment avenue while easing regulatory capi-
tap bonds in the next fiscal (FY26), in a bid to encour-
tal constraints," the person added.
age insurance companies to subscribe and better manage
their business, two people familiar with the matter said. A standing committee on finance had earlier estimated that
the insurance sector requires Rs. 40,000-50,000 crore to
The move, under consideration of the Union finance minis- address the issue of under-insurance in the country.
try, with the help of the Reserve Bank of India (RBI), would
also help the government nudge the industry towards its Queries sent to the ministry of finance remained unan-
target of insurance for all by 2047, these people said on the swered till press time.
condition of anonymity.
To be sure, bonds issued by the government-of any dura-
Investing in these 50-year on-tap bonds would provide in- tion-can be lapped up by various entities, including insurance
surers with a stronger financial cushion needed to operate firms, pension funds and banks, among others.
a business that handles long-term contracts. Life insurance
companies, for instance, give out policies that may span Industry reactions have been on the positive side. "I see sig-
decades. nificant interest from insurance companies because we do
have long-term liabilities when we give long-term guaran-
Insurance companies use money from premiums collected- teed offerings as part of our proposition to our customers,"
and their reserves-to invest in bonds and equities. Typically, said Tarun Chugh, managing director and chief executive
they invest the bulk of the monies in fixed-income instru- officer of Bajaj Allianz Life Insurance Co. "I see this particu-
ments like bonds so that the assured interest income can larly being good for non-par saving plans with a long-term
help them manage customer claim payouts as well as op- tenor and for annuity products."
erational expenses and business expansion over a long pe-
riod. Chugh said this is particularly relevant "because we cannot
expect that interest rates will always remain where they
The extended maturity of the 50-year bonds would provide are for 50 years. Hence, customers would want long-term
the stability and predictable returns that are essential for guarantees. And that is where this comes in very handy".
insurers managing large policyholder obligations, the people
cited above said. Venkatakrishnan Srinivasan, managing partner at Rockfort
Fincap Llp, a financial advisory firm, said that earlier issu-
"The need for longer-tenure bonds stems from the finance ances of 30-year and 40-year bonds have seen robust inves-
ministry's assessment that highlights the need for a secure tor participation, particularly from long-term liability-driven
long-term investment vehicle to help insurers mitigate po- investors such as insurance companies and pension funds.
tential asset-liability mismatches," the first person men-
tioned above said. "The oversubscription in these segments underscores the
growing appetite for duration, as insurers seek duration
The second person cited above said that while the govern- matched assets to mitigate asset-liability mismatches and
ment is considering an on-tap 50-year bond issuance, no optimize capital efficiency under IRDAI's (Insurance Regu-
dedicated allocation has been set aside for insurers. "Ex-
pected in FY26, the issuance could provide insurers with

44 April 2025 The Insurance Times