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BankingNABARD / RBI

IRDAI Allows Insurers to Hedge with Equity Derivatives

3 March 20251 min read
BANKING & FINANCEIRDAI AllowsInsurers to Hedgewith EquityDerivatives3 March 2025safalsetu.com

Why in the news

IRDAI allowed insurers to hedge their equity holdings through derivatives, helping manage market swings and protect policyholder returns.

Key facts

  • Tools: stock futures, index futures, stock options, index options.
  • Purpose: hedging only; no speculation.
  • Reason: growing equity investment and volatile markets.
  • Experts expect more liquidity in single-stock options.

Earlier position

Insurers could hedge only rupee interest rate derivatives: FRAs, interest rate swaps, exchange-traded IRFs and CDS for protection buyers.

Equity exposure

ItemDetail
Life insurers30-35% in equities, rest in fixed income
Unit-linked policiesFully equity or equity-debt mix
Traditional fundsFixed or flexible equity allocation
Average equity:debt35:65, varying by insurer

Exam angle

  • Regulator: IRDAI.
  • Earlier hedging covered only interest rate derivatives.

Test yourself

1. Which regulator permitted insurers to hedge equity exposure through derivatives?

IRDAI issued the guidance for insurers.

2. For what purpose may insurers use equity derivatives under the new guidelines?

Use is limited to risk management; no speculation.

3. What share of their portfolio do life insurers typically assign to equities?

Life insurers usually hold 30-35% in equities.

This topic is part of Daily Current Affairs 2 & 3 March 2025 (16 topics).

All topics of the dayDay quizMarch 2025

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