IRDAI asks insurance firms to not rely entirely on credit ratings

Regulator Irdai Tuesday asked insurance companies to be careful with their investment decisions saying they should not to just rely on the credit ratings but their own judgement as well. It could be noted that some of the listed companies of the now crippled IL&FS group were downgraded by Icra and Care to below investment grade following a string defaults since late August last year.

"We have told insurance companies that besides (credit) ratings, they should also apply their own judgement (before investing in any company)," Irdai chairman SC Khuntia told reporters on the sidelines of a global conference of actuaries organised by the Institute of Actuaries of India. He said insurers are mandated to make investments in highly rated instruments only.

When asked about the investments made by various insurers in debt-ridden IL&FS, which used to have AAA-ratings, Khuntia said in such cases insurers will have to watch and take action on those investments accordingly, and if required make provisions. "In case their is some change in the rating, they will have to take appropriate action. It will not be possible to tell them exactly what to do...we are making them aware that they will have to be proactive so that policyholders' interest is protected," he said.

He also clarified the regulator has also not asked insurers to pull out their investments in companies whose ratings have been downgraded as it could impact the markets. He said the Irdai will soon be communicating a timeline to LIC, which has acquired 51 per cent stake in IDBI Bank, to reduce its stake to 15 per cent.

"LIC is preparing a roadmap and when it is ready, they will communicate to us (the deadline to reduce its stake in IDBI Bank. Accordingly, we will fix the timeline. We have told them that they have to eventually bring it down to 15 per cent," Khuntia said. IDBI Bank also has a life insurance arm--IDBI Federal Life Insurance. As per Irdai norms, one promoter cannot have two insurers.

"This happened temporarily for this (LIC-IDBI Bank) acquisition. But, I think it will get sorted out. There are various methods to sort it out. Suppose IDBI Bank sell its stake in IDBI Federal Life then there will be no conflict of interest. It will take some time to resolve. But it needs to be sorted out. There should not be any conflict of interest," Khuntia added.