The insurance regulator wants companies to not just rely on the credit ratings of their investments, but also wants them to apply their own judgement.
Taking to reporters on the sidelines of an event, IRDAI chairman Subhash Chandra Khuntia said that besides the ratings, each insurer should take a decision based on the company.
“We have told insurance companies that they should not only be looking at the ratings. They also need to apply their own judgement,” he added.
Khuntia said this in response to a question on insurers’ exposure to debt-ridden IL&FS. Insurers, including Life Insurance Corporation of India (LIC), have exposure to IL&FS and its group entities. LIC is also the largest shareholder in IL&FS with a 25.34 percent stake.
“Each insurer has a separate exposure. For any investment, our requirement is that it should be done in highly-rated investments. Insurers will have to take necessary actions for those (IL&FS) investments,” he added.
Insurance Regulatory and Development Authority of India (IRDAI) has been monitoring the IL&FS situation closely. Insurers have been asked to make adequate provisions in proportion to their exposure to IL&FS.
At the time of investment, the IL&FS instruments were AAA rated. The infrastructure lender has been facing crisis since June 2018 after it defaulted on inter-corporate deposits and commercial papers (borrowings) worth about Rs 450 crore. Over the next three months, rating agencies also downgraded the company’s long term ratings.
After that, several group entities have seen a ratings downgrade and have missed a series of debt payments. IL&FS has a cumulative debt of Rs 91,000 crore.
Khuntia said that considering policyholders’ interest, insurers have been asked to not pull out of investments once there is a ratings change.
The regulator has also asked insurers to bring out a risk registry. Each insurer will list out the type of risks that they face and the possible solutions for those risks. Khuntia said that this is like a guidance being given to them.