The Insurance Regulatory and Development Authority of India (IRDAI) issued guidelines allowing insurers to use equity derivatives to hedge their equity portfolios, aiming to manage equity market volatility and preserve the market value of equity investments. Under the guidelines, insurers may buy hedges in stock and index futures and options against their equity holdings, subject to exposure and position limits, and equity derivatives may be used only for hedging. Any over-the-counter (OTC) exposure to equity derivatives is prohibited. Before taking exposure, insurers are advised to have a Board-approved hedging policy, internal risk management policies and procedures, adequate information technology infrastructure, and regular audits, supported by governance arrangements under which the Board and senior management review that contracts are not prejudicial to policyholders’ interests. Insurers must submit prescribed reports to IRDAI on a quarterly basis. The framework complements existing permissions for insurers to transact in rupee interest rate derivatives (Forward Rate Agreements, Interest Rate Swaps and Exchange Traded Interest Rate Futures) and to buy protection through Credit Default Swaps.
Insurance Regulatory and Development Authority of India 2025-02-28
Insurance Regulatory and Development Authority of India permits insurers to hedge equity portfolios using exchange-traded stock and index futures and options
The Insurance Regulatory and Development Authority of India (IRDAI) has issued guidelines permitting insurers to use equity derivatives for hedging equity portfolios to manage market volatility. Insurers can engage in stock and index futures and options, subject to exposure limits, but OTC equity derivatives are prohibited. Insurers must have Board-approved hedging policies, risk management procedures, and submit quarterly reports to IRDAI.