Irdai may let insurers invest in low-risk projects

MUMBAI: India may ease rules to enable insurance companies to invest in infrastructure projects. Insurance Regulatory and Development Authority is considering allowing insurance companies to invest in projects rated EL1 by rating agency Crisil, which assesses risk based on expected losses.

“The insurance regulator is looking to relax investment norms for companies and has held several meetings with the rating company and other stakeholders,” said a person familiar with the development.

“The relaxation will help insurance companies increase exposure to the infrastructure sector.”


The regulator currently allows life insurance companies to invest in housing and infrastructure bonds that are rated not less than AA. While the total investment in the category should not exceed 15%, the investment of life insurers was 8.1% of the total traditional funds in 2016-17. Life insurers had ?2 lakh crore exposure to infrastructure and housing in 2016-17. General insurers had exposure of 17.17%, with ?38,172 crore in infrastructure in 2016-17. Insurers can invest in real estate investment trusts and infrastructure investment trusts, with a minimum rating of AA and not exceeding 3% of the fund. Crisil has developed a credit rating framework for operational infra projects based on ‘expected loss (EL) methodology’.

The rating scale is from EL1 to EL7, with EL1 representing the lowest expected loss and EL7 the highest. Ratings are assigned based on the expected loss to be incurred over the life of the debt instrument and includes the probability of default and post-default recoveries.

The rating focusses on the recovery of dues to investors over the life cycle of an infrastructure project by factoring in the possibility of refinance or restructuring and arriving at an effective pricing of the credit risk.