Insurance Companies can Invest in Bonds of ONGC & Coal India’s Foreign Arm

Insurance regulator, IRDA in January 2011 permitted insurance companies to invest in bonds issued by foreign arms of ONGC and Coal India for acquiring energy assets abroad. IRDA’s move is expected that will significantly increase funds available for state energy firms at more attractive rates. Insurance companies have long sought such investment avenues as they are required to invest 15% of their funds in the infrastructure sector. However it was not permitted as the Insurance Act forbids investments outside the country. Investments by companies such as ONGC Videsh Ltd (OVL), the overseas arm of the state-run explorer, are not seen as violations of the Insurance Act as they are listed in India and returns on their investments are brought back to the country.

The existing investments norms allow insurance companies to invest 50% in government-approved securities, 15% in infrastructure and the remaining 35% in equity and other instruments. Insurance companies can only invest in AAA or AA credit-rated debt paper.