The Insurance Regulatory and Development Authority (Irda) has asked life insurers to stop selling highest net asset value (NAV)-guaranteed products.In a recent communication to all life insurers, the regulator has said, “The marketing of products labelled as highest NAV product shall not be allowed”. These products contribute almost 20 per cent to the total premium collection of life insurers.Irda, in the past eight months, had informally expressed its discomfiture with such products at several fora. The regulator’s argument was that such products led to systemic risks associated with the way funds were managed and posed the risk of a heavy sell-off in equities when stock markets fell. Highest NAV-guaranteed products are those that promise to pay the highest value the fund achieves during a certain period, say, five or seven years. However, to maintain that NAV consistently, insurers have to take risks by investing in stocks aggressively. That could lead to undue risks.
Source : Business Standard
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