INVESTMENTS - MASTER CIRCULAR -IRDAI (INVESTMENT) REGULATIONS, 2016

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA INVESTMENTS - MASTER CIRCULAR IRDAI (INVESTMENT) REGULATIONS, 2016 Version - 02 May, 2017 The Authority, to enforce IRDAI (Investment) Regulations, had issued various Circulars and Guidelines at different times. This Master Circular covers all Circulars, Guidelines which are effective to date, to serve as one stand point reference. While due care had been taken to prepare this Master Circular, users may point out inconsistencies, through Life Insurance Council or General Insurance Council, which will be addressed in subsequent versions • iatai Investment – Master Circular Page 2 of 66 INDEX 1. INVESTMENT CATEGORIES 1.1 Investment in Equity Shares through a. Limit for Investment in IPO b. Securities Lending and Borrowing (SLB) framework 1.2 Reverse Repo in Government Securities and Corporate Bonds 1.3 Mutual funds (incl. Exchange Traded Funds - ETFs) a. Investment in Equity Exchange Traded funds b. Investment in GILT exchange traded funds (GILT-ETF) c. Investment in Mutual fund 1.4 Investment in Asset backed securities, PTCs and SRs 1.5 Investment in Alternative Investment Fund (AIF) 1.6 Debt Securities issued by Banks a. Investment in Perpetual Debt Instruments of Bank’s Tier-I Capital and Debt instruments of Upper Tier-II capital b. Bank’s Capital Instruments under Basel III – Investment by Insurance Companies c. Long term Bonds by Banks – Financing of Infrastructure and Affordable Housing d. Investment in “Additional Tier 1 (Basel III Compliant) Perpetual Bonds” [AT1 Bonds] 1.7 Other specific Bonds/ Non-Convertible Debentures (NCDs) a. Investment in 8.13% Oil Marketing Companies; GOI Special Bonds 2021 b. Investment 8.15% GIO FCI Special Bonds, 2002 & 8.03% GOI FCI Special Bonds, 2024 c. Investment in Oil Companies GOI Special Bonds d. Investment in IIFCL Taxable Bonds – Approved Securities e. Investment in IIFCL Tax free Bonds – Approved Securities f. Investment in Indian Depository Receipts (IDR) g. Investment in Infrastructure Debt Fund – NBFC h. Investment in Infrastructure Debt Fund – Mutual Fund i. Investment in M/s L&T Infra debt fund – NBFC j. Investment in Onshore Rupee Bonds issued by Asian Development Bank (ADB) and International Finance Corporation (IFC) k. Investment in M/s India Infradebt Limited IDF– NBFC l. Investments in IDFC Infra Debt Fund Limited - NCD 1.8 Derivatives a. Exposure to Interest Rate Derivatives b. Exposure to Credit Default Swaps Investment – Master Circular Page 3 of 66 1.9 Investment in Units of “Real Estate Investment Trusts (REIT) &Infrastructure Investment Trusts (InvIT)” 2. RISK MANAGEMENT AND CONCURRENT AUDIT 2.1 Investment Risk Management Systems and Process 2.2 Audit of Investment Risk Management Systems & Process, Internal / Concurrent Audit a. Audit of “Investment Risk Management Systems and Process” b. Internal / Concurrent Audit of Transactions c. Appointment of Audit Firms for “Investment Risk Management Systems & Process” d. Appointment of Audit Firm for Internal / Concurrent Audit of Transactions e. Information of Audit Firm for Internal / Concurrent Audit to be filed with IRDAI 2.3 Reverse Repo in Government securities and Corporate bonds 2.4 Investment in Equity Exchange traded funds 2.5 Exposure to Credit Default Swaps 2.6 Exposure to Interest Rate Derivatives 2.7 Investment in “Additional Tier 1 (Basel III Compliant) Perpetual Bonds” [AT1 Bonds] 3. VALUATION GUIDELINES 3.1 Investment in Equity Exchange Traded Funds 3.2 Securities Lending and Borrowing (SLB) Framework 3.3 Investment in Mutual fund 3.4 Investment in Perpetual debt instruments of Bank’s Tier-I Capital and Debt Capital Instruments of upper Tier-II Capital 3.5 Investment in Onshore Rupee Bonds issued by Asian Development Bank (ADB) and International Finance Corporation (IFC) 3.6 Exposure to Interest Rate Derivatives 3.7 Income Recognition, Asset Classification, Provisioning and Other related matters 3.8 Insurers Board to decide Primary / Secondary Exchange for valuation of Securities 3.9 Investment in “Additional Tier 1 (Basel III Compliant) Perpetual Bonds” [AT1 Bonds] 3.10 Investment in Units of “Real Estate Investment Trusts (REIT) & Infrastructure Investment Trusts (InvIT)” 4. OPERATIONAL PROCEDURE 4.1 Reverse Repo in Government Securities and Corporate Bonds 4.2 Securities Lending and Borrowing Framework 4.3 Investment in Equity Shares through IPO Investment – Master Circular Page 4 of 66 4.4 Investment in Mutual fund 4.5 Investment in Alternative Investment Fund 4.6 Exposure to Credit Default Swaps (CDS) 4.7 Outsourcing of Investment function 4.8 Transfer of Investment 4.9 Other Investments in Pension and Group Fund 4.10 Transactions on Stock Markets to be on Cash Basis 4.11 Negotiated dealing system – Order Matching (NDS – OM) 4.12 Reporting of OTC transactions in Certificates of Deposits (CDs) and Commercial Papers (CPs) 4.13 Exposure to Interest Rate Derivatives 4.14 Issue of Long Term Bonds by Banks – Financing of Infrastructure and Affordable Housing 4.15 Reporting of transactions in Corporate Bonds, Commercial Papers, Certificate of Deposits & Securitised Debt 4.16 ULIP Fund Clearance procedure and NAV Process a. IRDAI ULIP Fund Clearance Procedure b. NAV Process 5. DISCLOSURES AND REPORTING NORMS 5.1 Reverse Repo in Government securities and Corporate bonds 5.2 Securities lending and borrowing framework 5.3 Investment in Credit Default Swaps 5.4 Exposure to Interest Rate derivatives 5.5 Issue of long term bonds by banks – Financing of Infrastructure and affordable housing 5.6 ULIP Periodical Disclosure 5.7 Exposure to Companies participating in JLF 6. FUND CLEARANCE FORMATS & INVESTMENT CATEGORY CODES 6.1 Asset Categories Sheet a. For “Existing “Segregated Funds – FORMAT 1 b. For “New” Segregated Fund – FORMAT 2 6.2 Fund Clearance Declaration – FORMAT 3 6.3 Exhaustive Asset Categories as per IRDAI (Investment) Regulations, 2016 a. Exhaustive list of Category Codes - Annexure – 1 b. Valuation methodology for Investment Categories - Annexure - 2 Investment – Master Circular Page 5 of 66 1. INVESTMENT CATEGORIES 1.1 Equity a. Investment in Equity Shares through IPO1 Equity shares offered through IPO, including Offer for Sale, which satisfy ALL of the following criteria shall be part of “Approved Investments” 1. Equity Shares are being “listed” through IPO 2. The company issuing shares through IPO shall belong to a financially sound Group with good performance record, for which the Insurer’s Board shall lay down the criteria 3. Performance track record of the company including Earnings and Dividend record, Dividend Criteria is satisfied for at least two past years as “unlisted” company as IRDAI (Investment) Regulations, Provided, in the case of Investee Companies, formed out of ‘de-merger’ of a parent company, issuing shares through IPO, the performance track record would apply with reference to the parent company 4. The Investment in Equity Shares should comply with prudential and exposure norms as prescribed and in particular, Note 7 to Regulation 4 to8 of IRDAI (Investment) Regulations, 2016 i.e., “actively traded” and “liquid instrument” conditions should be satisfied within 3 months from the date of listing 5. Any investment made in IPOs, which do not satisfy the above conditions, shall fall under ‘Other Investments’ b. Limit for Investment in IPO In the case of ‘Life’ Insurance Company, the maximum bid amount (and not Margin Money) to be invested in IPO shall be the least of the following 1. 10% of Subscribed Capital (Face Value) of the Investee Company (including the proposed Equity issue through IPO) or 2. 10% of the ‘Fund’ (Fund shall refer to all Investments under management taken together) In the case of ‘General’ Insurance Company, the maximum amount (and not Margin Money) to be invested in IPO shall be the least of the following 1. 10% of Subscribed Capital (Face Value) of the Investee Company (including the proposed Equity issue through IPO) or 2. 10% on the Investment Assets.