When an entity is downgraded, insures' investment in such entities is clubbed under the unapproved investment kitty and the insurers are allowed to have 10 per cent of their investment in the unapproved investment.
“If the 10 per cent is breached, there might be some problem, but so far the 10 per cent threshold has not been breached by any insurer," experts said.
There might be concern on the solvency of insurers having exposure to the four entities, the former member of Irdai
quoted above said. If such a situation arises wherein the rating downgrade of an entity threatens the solvency margin of an insurer, the insurer has to infuse fresh capital to maintain a solvency margin of 1.5.
The Irdai had in the past asked insurers with exposure to IL&FS to provide for their exposure. A lot of insurers including the state-owned behemoth Life Insurance Corporation have exposure to IL&FS.