Life Insurance companies may be allowed to invest in derivatives
Insurance Regulatory and Development Authority (IRDA) is expected to come out with new guidelines on investments to be made by Life Insurance Companies by the end of December 2006. The Industry is expecting that the insurers might be allowed to make use of equity derivatives to hedge their equity portfolios. Presently insurers are not allowed to invest in equity derivates. Also it is expected that the new guidelines will include more securities in the approved instruments category, thereby allowing fund managers to diversify their portfolios. The unit link schemes, which are equity oriented, are exposed to a high risk and if the hedging options are not available, the NAVs may see a nosedive in case of sharp downfall in the equity markets. Once the use of equity derivatives is allowed, the insurers will be able to come out with more innovative products and their investment portfolios will be more safe.