Indian insurance companies met with the Insurance Regulatory and Development Authority of India (IRDAI), seeking approval to trade equity options as a hedging tool against market volatility, sources familiar with the matter revealed.
The proposed regulatory changes would initially allow insurers to trade derivatives for products with exposure to benchmark stock indices. Under current regulations, while insurers can utilize certain derivatives for fixed-income hedging, they face restrictions on equity-market risk management tools.
This push for expanded hedging capabilities comes at a critical time as insurers seek to manage increased market volatility in the Indian equity markets.
The benchmark NSE Nifty 50 Index has declined approximately 11% from its September peak, highlighting the need for more sophisticated risk management tools.
Insurers argue for regulatory parity with mutual funds, which already have access to equity hedging instruments. The initiative reflects a broader industry effort to protect solvency ratios – a key measure of insurers' ability to meet their financial obligations – from potential losses in their equity portfolios.
The discussions have taken place over recent months, with insurers proposing a phased approach to implementing these new tools. The initial focus would be on benchmark index-linked products, potentially expanding to other equity instruments in the future.
IRDAI has not yet provided official comment on the proposed changes.
The regulatory body's decision could significantly impact how Indian insurers manage their equity market exposure and overall risk management strategies.
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