Irdai's New Hedging Guidelines: Reducing Risks in Volatile Markets

The Insurance Regulatory and Development Authority of India (Irdai) has introduced guidelines allowing insurers to use equity derivatives to hedge portfolios. This move is set to reduce risks associated with volatile capital markets by enabling insurers to manage equity exposure effectively.

The Insurance Regulatory and Development Authority of India (Irdai) granted permission for insurers to utilize equity derivatives, a strategic decision designed to mitigate risks in unpredictable capital markets. This directive is expected to lessen exposure volatility for insurers.

Irdai's 'Guidelines on Hedging through Equity Derivatives' were developed following insurer requests for more robust risk management strategies. It allows insurers to hedge existing equity exposures, aiming to stabilize the market value of their equity investments.

Insurers can now buy hedges in stock and index futures and options, while strictly adhering to exposure and position limits. The regulator prohibits any over-the-counter (OTC) equity derivative exposure and insists on a strong governance mechanism to protect policyholder interests.

(With inputs from agencies.)