Insurers get nod to invest in debt instruments of InvITs, Reits

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The Insurance Regulatory and Development Authority of India (Irdai) allowing insurers on Thursday 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 in a note released 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.

Added Anuj Puri, chairman, Anarock Property Consultants: “Reits and InvITs are at a very nascent stage in India. At this juncture, insurance firms willing to put money in these is a big boost as they reiterate the long-term growth story of Reits and InvITs and will also provide long-term stable capital. In fact, insurance and pension funds are known as ‘patient capital’ providers precisely because they invest for the long term. For Indian Reits and InvITs, this is definitely a very positive development.”

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