Thursday, November 15, 2012

NEW INSURANCE NORMS CAN BE A DOUBLE-EDGED SWORD

The finance ministry's proposal to allow insurance companies to invest in AA-rated securities will
broaden investment options for insurance companies. Currently, insurance companies only invest in
AAA-rated securities, which restricts their choice to government bonds and debt instruments of
top government-owned companies and a handful of the country's largest private sector firms. The
AA-rated universe is several times bigger and various kinds of companies are its members.
Rating agencies and insurance companies, however, say the new norms will help insurers provide better returns to policyholders without sacrificing safety. AA-rated securities give 50-100 basis points higher returns than AAA-rated paper and there's no great difference in risk profile.

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