The proposal to amend the regulations around the investments in infrastructure investment trusts (InvITs) is expected to open an alternate source of investments for Indian insurers and pension funds, according to GlobalData, a leading data and analytics company.

According to GlobalData’s Insurance Database, the total investment income of Indian insurers is expected to decline by -2.7% in 2020 as compared to the 6.2% growth registered in 2019, primarily due to the highly volatile equity markets and uncertain market conditions due to COVID-19.

Anjuli, Insurance Analyst at GlobalData, comments: “As per the guidelines laid by the Insurance Regulatory Development Authority of India (IRDAI), insurers’ investments in a single InvIT are presently capped at 5% and limited to listed equity securities. The proposed changes in regulations are expected to increase the cap for insurers and enable them to invest in debt securities issued by InvITs.”

Infrastructure projects have been the preferred mode of investment for Indian insurers. According to the Life Insurance Corporation of India, the infrastructure investments for the total life insurance industry valued at INR3.84 trillion, as of 31 March 2019, as compared to INR3.76 trillion during the same period the previous year.

The additional investment options in debt instruments are expected to yield more stable returns and a well-diversified portfolio to insurers and pension funds as compared to equity investments. In addition, the increasing demand for housing and infrastructure projects make InvITs an alternatively attractive proposition for Insurers.

Anjuli concludes: “The gradual opening up of the economy and revival in business activity is expected to partially stabilize the investment income for insurers in 2021. By investing insurance and pension funds into debt securities of InvITs, insurers can potentially limit the investment exposure to riskier assets amid highly volatile market conditions.”