IFSCA Investment Regulations for IIOs in GIFT IFSC: Permitted Assets, Exposure Limits and Investment Framework
The International Financial Services Centres Authority (Investment by International Financial Service Centre Insurance Office) Regulations, 2022 provide the regulatory framework governing investment of assets by International Financial Service Centre Insurance Offices (IIOs). The regulations, as amended up to 17 October 2024, establish rules around eligible investments, asset allocation, credit quality, geographical exposure and concentration limits for insurance entities operating from an IFSC.
What Constitutes an Investment under the IFSCA Regulations?
The starting point for understanding the investment framework is the meaning of “financial assets” and “investment” under the regulations.
Financial assets include a wide range of conventional and alternative investment instruments. These include bonds, debentures, convertible bonds and debentures, listed equities, warrants, preference shares, debts, deposits and securitised debt such as asset-backed securities. The definition also covers immovable properties and property rights such as mortgages, liens and pledges.
Other eligible financial assets include policy loans within the surrender value in the case of life insurance, units of mutual funds, Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and Category I and Category II Alternative Investment Funds (AIFs). Derivatives are recognised where used for hedging, while money market instruments are also included. IFSCA retains the ability to specify additional instruments or assets.
The term “investment” broadly refers to deployment of funds in financial assets or infrastructure assets in accordance with the regulations. However, certain transactions are specifically excluded. These include certain releases or relinquishments arising from administrative or judicial orders, claims arising solely from commercial contracts for goods or services and related credit, and specified investments backing unit-linked or separate-account insurance liabilities where the prescribed asset replication approach is followed.
This broad definition gives IIOs access to multiple asset classes while retaining prudential controls over how insurance funds are deployed.
Core Investment Principles and Permitted Jurisdictions
Every IIO is required to have a Board-approved Investment Policy. Among other matters, the policy should address situations involving breaches, action plans for correcting breaches and provisions relating to economic capital, where required. IIOs must also value their assets and liabilities and maintain the solvency margin prescribed by IFSCA.
A fundamental prudential principle is that an IIO must earmark, invest and continuously maintain assets having a value not less than its liabilities. While managing these investments, factors including the nature, term or duration, currency and uncertainty of investments must be taken into account. Relevant investment assets must generally remain free from encumbrances, charges, hypothecation or liens.
The regulations also provide significant geographical flexibility. An IIO may invest:
- within the IFSC;
- in India through the applicable regulatory framework specified by RBI or SEBI;
- in the country in which its parent entity is incorporated or domiciled, subject to its home-country regulatory requirements; or
- in another country or jurisdiction that is not identified by FATF as a high-risk jurisdiction subject to a call for action.
Therefore, investment compliance involves both asset eligibility and jurisdictional eligibility.
What Are “Investible Funds” or “Investment Assets”?
The composition of investible funds varies depending on the nature of insurance business undertaken by the IIO.
For an IIO conducting life insurance business, investible funds include shareholders’ funds to the extent representing the solvency margin and policyholders’ funds comprising participating and non-participating funds. They also include funds relating to variable insurance products, non-unit reserves of unit-linked insurance business and pension, annuity and group superannuation business. Policyholders’ unit reserves relating to unit-linked insurance business are also included, subject to the applicable valuation framework.
For an IIO undertaking general insurance, health insurance or reinsurance business, investible funds comprise funds maintained in the account of the parent entity, shareholders’ funds representing the solvency margin, and policyholders’ funds at their carrying value as reflected in the balance sheet prepared according to applicable regulations.
This distinction is important because the regulatory exposure percentages are ultimately applied with reference to the relevant investment assets of the IIO.
Permitted Asset Classes and Maximum Investment Exposure
Regulation 9 establishes the principal Investment Asset Exposure Pattern Matrix.
| Investment Asset | Maximum Exposure | Buffer |
|---|---|---|
| Listed/to-be-listed bonds, debentures, ABS, MBS and debt mutual funds | 80% | 20% |
| Other debts, corporate and bank deposits and similar rights | 30% | 10% |
| Listed/to-be-listed equities and equity-type instruments | 20% | 5% |
| Category I and II AIFs | 5% | 5% |
| Loans other than policy loans | 5% | Nil |
| Immovable property including REITs | 5% | Nil |
| Infrastructure including InvITs | 5% | Nil |
| Money markets for new funds pending deployment / maturing-policy payments | 100% | Nil |
| Money markets for other than new funds | 15% | Nil |
These percentages apply to the total investment assets of the IIO.
There are additional sub-limits. Exposure to debt mutual funds cannot exceed 10% of total debt investments, while combined exposure to MBS and ABS cannot exceed 5% of total debt investments. The regulations also clarify that “invested” means “invested and kept invested”, reinforcing that compliance is continuing rather than merely being tested on the investment date.
Importantly, these asset-class limits do not operate in isolation. Depending upon the investment, credit-rating, sovereign-rating and entity/group concentration limits may also become relevant.
Special Rules for Unit Linked Insurance Products
Regulation 9A contains a separate framework for Unit Linked Insurance Products (ULIPs).
IIOs are required to invest and continuously keep invested the funds of unit-linked business according to the investment pattern subscribed by policyholders, with the underlying asset categories being marketable and readily realisable.
At the level of each individual segregated fund, the following exposure limits apply:
| Exposure | Maximum |
|---|---|
| Single entity/investee | 10% |
| IIO’s own group | 5% |
| Any other single group | 15% |
| Particular industrial sector | 15% |
Special relaxation is provided for passively managed or index-based mutual funds and ETFs. Certain entity, other-group and industry exposure restrictions become applicable after three years from launch of the segregated fund or when its AUM reaches USD 25 million, whichever occurs earlier.
Special Rules for Retained Premium Invested in India
Regulation 9B provides a separate investment pattern for specified IIO investments of retained premium in the Domestic Tariff Area (DTA).
| Investment Asset | Maximum Exposure |
|---|---|
| Central Government of India securities | 10% |
| Corporate bonds | 15% |
| SEBI-approved Category I & II AIFs | 10% |
| Immovable property including REITs | 5% |
| Infrastructure including InvITs | 5% |
| Short-term money market instruments | 90% |
| Equity, preference shares and convertible debentures | 25% |
| Debt including commercial papers | 90% |
The regulation further provides that where RBI or SEBI prescribes an applicable maximum exposure limit, such extant limit will prevail.
Exposure Limits Based on Credit Ratings
Credit quality is an important component of the IIO investment framework. Investments are generally required to be in assets rated Investment Grade under the Insurance Capital Standards – Rating Categories (ICS-RC) by international rating agencies recognised by the International Association of Insurance Supervisors, unless IFSCA specifies otherwise.
For bonds, other fixed-income instruments, debts, corporate deposits and bank deposits, Regulation 10 prescribes:
| ICS Rating Category | Maximum Exposure | Buffer |
|---|---|---|
| ICS-RC 1 | 100% | Nil |
| ICS-RC 2 & 3 | 50% | 10% |
| ICS-RC 4 | 20% | Nil |
| India including IFSC | 100% | Nil |
The percentages apply to the IIO’s total investment assets.
The framework therefore permits higher exposure to better-rated investment categories while progressively restricting exposure as credit quality reduces.
Country-Level Exposure Based on Sovereign Ratings
Regulations 11 to 13 introduce another layer of control based on the Sovereign Credit Rating (SCR) of the jurisdiction.
For bonds, debts and deposits, maximum exposure can reach 100% for SCR-RC 1, reducing to 50% for SCR-RC 2 and 3, 20% for SCR-RC 4 to 6, and 10% for SCR-RC 7 and lower categories that remain investment grade. India including IFSC carries a 100% limit.
A similar sovereign-rating framework applies to listed equities, equity mutual funds, preference shares, Category I and II AIFs and derivatives. The relevant limits range from 100% for SCR-RC 1 to 10% for lower but still investment-grade sovereign categories.
Property and infrastructure investments are also linked to sovereign ratings, creating a consistent country-risk overlay across different asset categories.
Entity, Group and Industry Concentration Limits
Regulation 14 seeks to prevent excessive concentration of an IIO’s investment portfolio in individual entities, corporate groups or particular industries.
| Exposure Category | Maximum of Total Investment Assets |
|---|---|
| Single investee entity | 10% |
| IIO’s own group | 5% |
| Any other group | 15% |
| Particular industrial sector | 15% |
Additional investee-level restrictions also apply. Aggregate investments in equity shares, preference shares, convertible debentures and other equity-related instruments cannot exceed 10% of the investee’s total paid-up equity share capital. Similarly, investments in bonds, debentures, commercial paper, loans and other debt instruments are subject to a separate 10% investee-level threshold based on the specified capital, reserves and debt base of the investee.
Conclusion
The IFSCA investment framework for IIOs combines asset-class limits, jurisdictional eligibility, credit quality, sovereign risk and concentration controls. Accordingly, investment compliance should not be assessed merely by asking whether a particular instrument is permitted. IIOs need to continuously evaluate the applicable asset, rating, country, entity, group and industry limits to ensure that their investment portfolio remains within the regulatory framework.
