Bond Forwards for Insurers: IRDAI Circular Explained
Why in the news
A new IRDAI circular, following an RBI directive, lets insurers hedge rate risk with bond forwards.
Key facts
- Positions: only long.
- Reporting: every quarter.
- Barred for ULIPs.
- Existing tools: FRAs, swaps, exchange-traded futures.
| Feature | Bond forwards | FRAs |
|---|---|---|
| Settlement | Bond delivered at maturity | Cash, on yield difference |
| Availability risk | Lower | Higher |
| Insurer preference | Preferred | Losing appeal |
Significance
- Experts expect FRAs to become redundant for insurers.
- Delivery aids liquidity planning; reporting adds transparency.
Exam angle
- Regulator: IRDAI.
- Excluded product: ULIPs.