There is a changing trend in where insurance companies are parking their money.
While government securities dominate the investments of insurance companies, a wider pool of approved investments by IRDAI is garnering interest in other investment options amid falling bond yields.
Approved investments include equities and exchange-traded funds, corporate securities, perpetual debt instruments such as banks' tier 1 and tier 2 capital, select mutual funds, commercial papers and onshore rupee bonds issued by ADB and IFC, among others.
A category-wise breakup of investments made by life insurance companies in FY24, as per IRDAI's annual report released on Monday, shows approved investments for non-linked products constituted 19.74 per cent of overall investments compared with 18.82 per cent in FY23.
While central government securities constituted 45.17 per cent (44.95 per cent in FY23), state government securities constituted around 24.01 per cent (23.90 per cent in FY23).
For general insurers and reinsurers, the share of approved investments has increased from 22.16 per cent in FY23 to 27.07 per cent in FY24.
The increase in the share of approved investments comes at a time 10-year bond yield has declined from 7.45 per cent in February 2023 to 7.05 per cent in March 2024 and is at 6.88 per cent at present.
Housing is another area where the regulator allows the insurance company to invest and its share within investments of life insurance companies in FY24 was 9.26 per cent while that of general insurers and reinsurers was at 7.03 per cent in FY24.
According to insurance industry sources, the regulator has further expanded the ambit of investments of insurance companies as part of the IRDAI (Actuarial, Finance and Investment Functions of Insurers) Regulations, 2024. Among the changes, IRDAI has allowed insurance companies to invest in the private placement of promoter group companies falling under the top 100 listed companies by market capitalisation and central public sector enterprises.
Besides bonds and debentures, the regulator is allowing equity investment in housing finance companies to be treated as part of the exposure to the housing and infrastructure sector. The exposure limit for investment in the banking, financial services, and insurance (BFSI) sector has been raised to 30 per cent.
Meanwhile, the non-life insurance industry's incurred claims ratio (net incurred claims to net earned premium) stood at 82.52 per cent during FY24 against 82.95 per cent in the previous year.
Public sector general insurance companies have also recorded a turnaround in FY24, recording a profit of ₹157.34 crore in FY24 compared with a loss of ₹10,807.44 crore in FY23.