- Except the role of independent investment advisor, insurance companies cannot outsource any of the investment management function. And the limited outsourcing allowed(asset class specialist/NAV calculation agent) cannot be charged to policyholders account , but must be borne by insurance company itself.
- While the Front office(fund manager+dealer) reports to CIO(Chief Investment Officer) who reports to CEO, the Middle office/Back office report to CFO. As both CIO/CFO report to CEO, there is some balance of control between front office and its control functions(middle/back office)
- Also, transfer of data from Front Ofﬁce to Back Ofﬁce is 100% electronic(no manual intervention, even faulty data can only be rejected NOT edited), to avoid chance of cooking the books post transaction.
- For valuing quoted securities, market value is accepted only for quote not older than 30days. Otherwise, book value(net of provisions) is used. This heavy penalty would incentivize investment in liquid stocks, OR having a 'friendly broker' to trade in those shares prior to accounts closure. In contrast, SEBI permits using good faith valuation methodologies based on DCF, which incorporate the liquidity discount.
- To avoid the excuse of 'ratings dependence', IRDA clearly specifies(wef Aug'08) that rating is not a substitute for risk analysis(quite obvious but then the most simple things are often overlooked).
Saturday, September 17, 2011
Safety first-IRDA investment management regulation.
I compiled the below analysis from the various IRDA regulations in force. Those interested are welcome to browse the IRDA website to locate these and more. The LIC 'deficit' allegation did tarnish IRDAs image a bit but then LIC is the 800pound gorilla of Indian insurance/investing, which can get away with murder! Below are some examples of how investment managers of insurance assets are put on a tight leash.