Under the existing norms, only investments in listed companies, which have paid a minimum dividend of 10% for at least two consecutive years, can be included in the approved category.
Last year, a committee set up by the regulator had recommended allowing insurance companies to invest in equities without the dividend norm.
An official aware of the developments said, “The industry in various talks with the regulator has sought further liberalization of investment norms.
“It is being seen whether to do away with it (dividend rule) or reduce the limit, but any relaxation will be provided along with prudential rules to protect the policyholders.”
Insurance Regulatory Development Authority of India (IRDAI) had relaxed the dividend norms for the year April 1, 2020, to March 31, 2021, after the pandemic, when several companies were forced to forgo dividends. In August, it notified that the exemption would continue beyond September 2022.
The regulator allowed investments in equity shares of firms that paid dividends “for at least two out of three consecutive years” to be classified as “approved investments”.
Under regulation 3(5) of the IRDAI (Investment) Regulations, 2016, no insurer shall “invest in equity shares of any listed company on which at least 10% dividend has been paid for at least two consecutive years”. done immediately before”.
Life insurers can invest up to 50% of the regulated fund in other approved instruments, which include bonds and other debt instruments, in addition to shares and preference shares. In unit linked insurance business this limit is higher by 70%.
The above-quoted official said the removal of dividend status would help more companies tap the public market and get institutional support, which would make equity markets more efficient and support domestic growth.
A senior official of a state-run insurance company said that some companies which are on growth trajectory want to retain the dividend and make a case for removing the dividend status in order to generate higher profitability and return on equity for the shareholders in future. want to
“Such companies are classified as ‘other investments’ due to their non-dividend paying nature, irrespective of their profitability and growth,” he said, adding that there is no basis to believe that only high dividend payers are required to pay dividends. Only companies that do are good for investment.