With the help of Reserve Bank of India (RBI), this step by the Union Finance Ministry will help the government naked the industry for their target of insurance by 2047, these people said on condition of anonymity.
For insurers, investing in these 50-year on-tap bonds will provide them a strong financial cushion required to operate a business that handles long-term contracts. For example, life insurance companies give policies that can spread for decades.
Insurance companies use the premium collected to invest in bonds and equity and money from their reserves. Typically, they invest the bulk of monies in fixed-incredible instruments such as bonds to help them manage the customer claims as well as manage operational expenditure and commercial expansion over the long term.
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The 50-year-old bond will provide extended maturation stability and forecasted returns that are required to the insurers for the management of large policyholders obligations, which were said by the above people.
“Long-term tanner bond requirement stems from the assessment of the Ministry of Finance that highlights the requirement of a safe long-term investment vehicle to help the insurers reduce potential asset-liability mismatch,” said the first person.
Meanwhile, the other person above said that when the government is considering issuing an on-tap 50-year-old bond, no dedicated allocation for the insurer has been separated. “Expected in FY 26, issuing in FY 26, can be provided with a stable, long -term investment avenue to reduce the lack of regulatory capital with a stable, long -term investment avenue.”
A Standing Committee on Finance had earlier estimated that the insurance sector requires capital value 40,000-50,000 crore to address the issue of under-insurance in the country.
The questions sent to the Finance Ministry were unliked by the press time.
To ensure this, bonds issued by the government – for any period – can be prepared by different institutions, including insurance firms, pension funds and other institutions including banks.
Positive industry on movement
The reactions of the industry have been on the positive side. Tarun Chugh, MD and CEO of Bajaj Allianz Life Insurance Company, said, “I see significant interest from insurance companies because we have long -term liabilities when we offer long -term guaranteed offerings to our customers as part of our proposal.” “I see it well for non-rich savings schemes with especially a long-term tanner and for annuity products.”
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Chugh said it is especially relevant “because we cannot expect interest rates always remain for 50 years. Therefore, customers want long -term guarantee. And that’s where it is very useful”.
Venkatakrishnan Srinivasan, managing partner of the Financial Advisor firm, Rockfort Fincap LLP, said that the release of the first 30-year and 40-year bonds has seen strong investor participation, especially from long-term liabilities such as insurance companies and pension funds.
He said, “The overskripution underlines the increasing appetite for the oversscription period in these sections, as the insurers seek asset-lower mismatches and seek-mill assets to optimize capital efficiency under the IRDAI’s (insurance regulator and India’s development authority) solvency criteria,” he said. IRDAI requires insurance companies to maintain a minimum solvency ratio of 1.5. This means that the required solvency margin (RSM) is 150%.
Srinivasan further said that the introduction of a 50-year sovereign bond will be a natural progress in the government’s debt management strategy, as it not only fulfills the demand for stable, risk-free long-term assets of the insurers, but also helps the government to smooth its redemption profile, reduce refining risks and expand its overall loan stock.
He said, “In addition, the introduction of an on-tap issue for ultra-long bonds will get more market depth and flexibility, allowing institutional investors to dynamically calibrate their exposure without distorting the liquidity of the secondary market. This step is well-known with global best practices,” he said.
background
An on-tap bond, also known as a tap bond or tap issue, allows an release to raise additional funds by releasing more bonds with the same words as an existing series, ensuring quick and efficient capital infusion. In contrast, a regular bond is to release a standalone with unique words. The major advantage of a tap bond is that it creates an existing bond structure, ends the need to release a new one when capital is required.
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Meanwhile, IRDAI agreed with the recommendation of the Standing Committee to issue on-tap bonds with a maturity of up to 50 years to provide insurers with long-term investment options.
However, the insurance regulator believes that the government’s annual credit program can make it unnecessary to determine a portion of these long -term securities for the insurers, as it will compel the insurers to take membership, according to the recent response of the Finance Ministry in Parliament.
Additionally, IRDAI has noted that in November 2023, RBI had already released 50-year securities. 30,000 crores. Any additional quota of high-functioning bonds up to 50 years will be released on the required requirements required.
Anirudh Laskar contributed to this story.
