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September 01, 2004

Insurers allowed to use derivatives

Insurance companies have finally been allowed to hedge against interest rate risks with the Insurance Regulatory and Development Authority, IRDA, allowing the use of derivatives, reports The Economic Times.

The regulator has, however, said that the derivatives can be used only for hedging and should be sanctioned by the company’s board. By entering into a derivative contract an insurance company that provides targeted or guaranteed returns can insure against falling interest rates on a floating rate instrument by entering into an interest rate swap with a bank or any entity that has shorter-term assets.

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Posted by Tom Troceen


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