Insurers run for cover after ratings cut of RCap co papers

MUMBAI: The ratings downgrade of select instruments of two Reliance Capital group companies last week is now threatening to spill over into the insurance sector with some insurers seeking regulatory forbearance on complying with investment norms.

People close to the development said some insurance companies, facing a breach in investment norms under unit-linked plans and group and annuity funds, have asked Insurance Regulatory and Development Authority of India (Irdai) for extra time to comply with the rules. They have told the regulator that they need more than the stipulated three days to comply with a rule which says that not more than 5 per cent of their funds would be invested in companies with ratings of A+ and below. In ULIP funds, a minimum 75 per cent of funds have to be invested in papers rated AAA and up to 25 per cent in AA+ papers. The sub-limit in the overall fund cannot be more than 5 per cent in A+ and below rated papers.

“Due to the ratings downgrade there was a passive breach in one of our ULIP funds,” an insurance company executive said on condition of anonymity.