Insurance companies will be allowed to increase their exposure in equities from 10 percent to a higher level of 12 percent and 15 percent. Rajesh Sud, MD & CEO of Max Life Insurance told CNBC-TV18 that it is good to have some headroom to play with and markets are looking up a bit.
Further Sud feels that flexibility is always good and level playing field would certainly be an important issue.
Below is an edited transcript of Rajesh Sud's interview on CNBC-TV18
Q: A hike in your equity exposure to about 15 percent is good news for most insurance companies because Life Insurance Corporation (LIC) has been allowed to hike to 30 percent. Is it a level playing field?
A: You could look at it from that side and say it is better. People in private sector would say, we still have significant headroom on the 10 percent benchmark in a company as well because products demand that we diversify investments across multiple companies and to that extent internal investment guidelines for most companies would have kept a tighter number than 10 percent also. However, it is good to have some headroom to play with and markets are looking up a little bit. It is always good to have some flexibility and certainly level playing field would be an important issue.
Q: Will it make difference to private insurance because you are anyway not allowed to go beyond 10 percent in most cases?
A: Allowed or not is a different issue. You would just take a view from an investment management perspective and good principles and demand that there is a certain limit of exposure to sectors and to companies that most companies would operate with as internal guidelines. To that extent, 10 percent is a pretty big number to have exposed yourself onto and we are talking of large funds that we manage, our assets in the management for our company are Rs 20000 crore.
Q: Do you believe that the Insurance Regulatory and Development Agency (IRDA) has been browbeaten by the government to go in for this hike because the IRDA was not in favor of LICs exposure being hiked to 30 percent and this is a decision that they are now going back to, they had brought down the equity exposure four years ago and they are having to do a u-turn?
A: With this regulator getting browbeaten into anything is like a far fetched idea now.
Q: Anything important on the agenda that you would have liked to hear but hasn’t come through?
A: Two or three other big items that are hugely anticipated, there is reference to them in the headline news that has come from the IRDA in the press release and that talks about a certain product guideline being finalised and issued soon. This is being discussed between the industry and the regulator now for almost a year and has ramifications for almost all forms of products that industry currently sells. So, that would be by anticipated both in terms of what they have proposed as guidelines as well as what is the timeline around implementation.
In 2010, when there was a very short timeline given to the industry to adapt with the new unit linked insurance plan (ULIP) guidelines, that created a bit of a dislocation for all of us. So, we are just hopeful that this time there will be more time given for the industry to adapt. Other than that, there is stuff on health insurance, again one doesn't have details about it but there is a mention of that. There is also talk about a standardised proposal form which is a welcome move, we will take that on.