1. The regulator has earlier specified various prudential norms for investments in NCDs and Terms Loans. However, in the latest amendment, the Regulator has left prudential norms to the discretion of the board thus removing a major impediment.
This provides leeway as the board, keeping in view the availability of skills for appropriate risk assessment of an investment with the company, may evolve the norms such that the policyholder’s funds enjoy highest amount of safety.
2. The discussion in the foregoing paragraphs clearly indicate that the regulations are prescriptive in nature, with an objective to protect the funds of the policyholders and as in the case of any prescription impose constraints on the flexibility and innovative ability of the insurer in investing the funds.
By no means are these restrictions undesirable, given the nascent development of Indian financial markets, inability of various regulators to prevent market manipulations, inadequate and lack of prompt punitive system and slow and complicated legal systems.
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Some Concluding Remarks :
i. If we compare the Indian regulations with those prevailing in U.K., the developed insurance market, there are no restrictions on the investment pattern in U.K. The value of assets has to be maintained at more than the value of liabilities.
However, for valuation, which is based on market value of assets, the admissible of asses and caps on investments in particular assets have been specified. However, these rules do not preclude insurers from holding assets, which are not admissible, as long as they demonstrate solvency.
The insurer has to disclose all his investments completely so that policyholders are aware of the investment pattern and its performance.
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ii. On the other hand, the regulations in US are again prescriptive with quantitative qualitative restrictions on the investments of insurers even though the markets are well developed and efficient.
India over a period of time, as its gains experience may gradually progress towards the US pattern and from there to UK pattern, if our markets and legal systems are fully developed and equipped to deal with any eventuality efficiently.