While in the normal course, the regulator is likely to cap the investment of such polices at 20 per cent, the ceiling can be relaxed by another 5 per cent with prior approval of the board through what is called discretionary limits.

According to sources close to the development, exposure to a single company or a fund is expected to be capped at 10 per cent of the policyholders fund or the total investment in a particular fund, whichever is less.

At present, there are neither single nor group company exposure norms for Ulips. The insurance regulator is in the process of working out the exposure norms for Ulip to avoid concentration of risk.

Ulip is a life insurance product that provides the benefits of protection as well as flexibility in investment, offering higher returns than usual covers.

The investment is denoted as units and is represented by the value that it has attained, called the net asset value (NAV). The policy value varies according to the value of the underlying assets at the time.

Concentration risk arises from excess investment in a fund or in a company where the fund is investing.

The idea is to prevent any downside to the policyholders' investment in such policies that may arise from excess investment in one company or a group of companies.

The proposed guidelines are part of the comprehensive overhauling of the investment norms by the insurance companies in an attempt to provide them freedom to invest more in the equity and debt markets.

The advisory committee of the insurance regulator has recommended discretionary investments to be made in initial public offers of companies and venture capital funds, among others.

While the board can lay down the broad investment policy, the investment committee of an insurance company can take independent decisions without getting the prior approval of the board.

At present, of the 85 per cent investments in government securities and approved investments, 50 per cent have to be in government securities. Out of this, 5 per cent is earmarked for gilt funds.

The committee has advised to raise this limit to 10-15 per cent so that insurance companies can invest in liquid instruments. Gilt funds are managed by asset management companies where the money is invested in short-term money market instruments.

In order to channelise more funds from the insurance sector to infrastructure development, insurance companies will get to invest more in instruments floated by infrastructure developers without bothering about collateral or their record of interest payments.

At the moment, insurance companies can invest in any instrument like a mortgage-based security or commercial paper as long as it is rated well.

They can also invest in instruments floated by special purpose vehicles for infrastructure investments. 

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