Under the existing guidelines, life insurance companies can invest up to 15 per cent of their investible corpus in papers issued by power, roads, ports, dams, housing and construction companies or projects. In addition, life insurers had to invest at least half of their investible surplus in government securities, while 35 per cent could be allocated for investment in other instruments, including equities. The norms for unit-linked plans that account for 90 per cent of the sales, however, permit investors to allocate the entire money in equities.
While the definition covered sectors other than core infrastructure, companies said that there was inadequate availability of papers. For instance, against a target of Rs 4,000 crore, National Highways Authority of India has raised only Rs 520 crore so far. During the last financial year, the highways construction agency raised Rs 1,630 crore, as against the annual target of Rs 3,000 crore.
Rural Electrification Corporation, the other large company which depends on debt, has raised Rs 18,000 crore so far this year, as against Rs 14,800 crore during 2008-09, a senior company executive said.
Last year, the market expanded as India Infrastructure Finance Company raised Rs 10,000 crore by issuing tax-free bonds. But given its inability to deploy the funds so far, the company is unlikely to tap the market for a similar issue this year.
During the current financial year, life insurance companies are expected to earn a premium income of Rs 2,55,000 crore, as against Rs 2,10,000 crore during the last financial year. This includes the renewal premium income as well as income emanating from sale of new policies.
In an interview last week, ICICI Prudential Life Insurance Managing Director and CEO V Vaidyanathan told Business Standard that the industry could generate an annual premium income of Rs 8,00,000 by the end of the next decade. With higher funds flow, company executives said, the availability of infrastructure sector papers also needed to expand at the same pace.
A senior executive at a large private sector insurance company said that the demand to widen the definition was made by companies that did not fall within the purview of the existing classification. The government has forwarded the proposal to Irda, which in turn has approached insurers to seek their comments.
"Since there are not many bonds available, it will be a good idea to broaden the scope. Investment in sectors such as cement, steel and engineering, which also contribute to the development of infrastructure can be included in the definition," said the chief executive officer of a life insurance company.
The present norms allow investment to be treated as infrastructure sector exposure if the company involved owns a project, but is not responsible for building it. Insurers are now suggesting that engineering, procurement and construction companies and others such as Larsen & Toubro and Bharat Heavy Electricals Ltd (Bhel), which are involved in development of a project, should be included in the new definition.
Also, the insurance regulator mandated that 75 per cent of the infrastructure investment should be made in AAA-rated bonds. Insurance company executives said that this restricted their flexibility in selecting the bonds and companies in which they could invest.
Recently, banks approached the government for allowing them to float tax-free infrastructure bonds to access low-cost resources for the long term. At present, only infrastructure companies are allowed to
