Insurance Companies can invest in InvITs, REITs

The Insurance Regulatory and Development Authority of India (Irdai) allowing insurers on 22 April to invest in debt securities issued by infrastructure investment trusts (InvITs) and real estate investment trusts (Reits) is expected to improve the overall yield of th

BY Realty Plus
Published - Wednesday, 28 Apr, 2021

Insurance Companies can invest in InvITs, REITs

The Insurance Regulatory and Development Authority of India (Irdai) allowing insurers on 22 April to invest in debt securities issued by infrastructure investment trusts (InvITs) and real estate investment trusts (Reits) is expected to improve the overall yield of the portfolios held by the firms, while providing more long-term funding to the realty sector. The nod came after Irdai had allowed insurers in March to invest in the units of such pooled investment vehicles. “The move gives insurance companies an additional opportunity to invest in top-rated infrastructure assets. By their very nature of business, insurance companies are long-term players and hence ideal candidates for investments in long-term infra projects," said Arun Srinivasan, head of fixed income, ICICI Prudential Life Insurance Co. Ltd. Irdai said on 22 April that insurers cannot invest in debt instruments of InvITs and Reits rated below AA as a part of the approved investments. Instruments rated or downgraded below AA should form part of ‘other investments’. Insurance companies can invest in bonds of InvITs or Reits of any ratings, but if it is below AA, it becomes part of other than approved investments, and above AA rated, it becomes approved. As per Irdai, 75% of the insurers’ investments have to be in AAA-rated assets, while 25% can go to instruments rated AA or even A-. Moreover, an insurer can take exposure to below AA-rated instruments only after getting approval from the board. However, insurance companies generally stick with AAA-rated instruments such as government securities. Most of the Reits and InvITs that have been launched are AAA-rated. Irdai also said that insurers cannot invest more than 10% of the outstanding debt instruments in a single InvIT or Reit. “The current attractive spread of these structures makes it a compelling proposition. Investment in these bonds will improve the overall yield of the portfolio on a risk-adjusted basis. In our view, this move will go a long way in supporting the infra growth of the economy," said Srinivasan.