The Insurance Regulatory and Development Authority allowed on Tuesday insurers to acquire up to 20 per cent debt and equity in an infrastructure-related company, compared with 10 per cent earlier.

The regulator said the move is aimed at enhancing the flow of insurance funds to meet the present needs of infrastructure financing.

The insurers can now pump in more money out of their investible funds in debt and equities of publicly-listed companies that are engaged in infrastructure and housing sector, while they would have to maintain a ceiling of 10 per cent in equities of other companies.

Irda's move has come at a time when the shares of most of the infrastructure and housing companies are trading at their year lows on the exchanges and the sector itself is facing a dearth of financing.

Investment by insurers are mostly done for the long -term, which essentially means the insurers would be able to reap huge appreciation when they sell their holdings.

"Infrastructure sector requires powerful, long-term alternative funding. Worldwide, only insurance companies and pension funds are funding infrastructure projects.

"This will lead to a closer alignment with the global market. We will look at raising our stake to 20 per cent in viable projects," said ICICI [Get Quote] Lombard MD and CEO Sandeep Bakshi.

Relaxing the investment norms further, Irda has allowed insurers to invest an additional 5 per cent in debt instruments of infrastructure and housing companies, over and above the 20 per cent ceiling, with a prior board approval.

"Today getting good investment is difficult, the basket where you can invest is oming down. Infrastructure will give good returns in the long period. This is also the right time to invest in infrastructure and the relaxation will give us more scope to invest," said SBI [Get Quote] Life Managing Director and CEO U S Roy.

The country's largest insurer, Life Insurance Corporation of India already holds over 10 per cent in a host of companies. LIC [Get Quote] held about 2.02 per cent in Ansal Properties and Infrastructure, around 1.57 per cent in HDFC [Get Quote], about 1.34 per cent in Unitech, and about 1.16 per cent in Hindustan Construction Company [Get Quote] at the end of September 2008.

Following Irda's move, the corporation is likely to raise its stake in such companies in the coming days.

"We are evaluating the benefits of this amendment by Irda," said a senior executive at LIC.

Irda said the insurers would be allowed to invest only in debt papers that enjoy a minimum AA rating.

While investing in such debt papers, the insurers are also required to stay invested for at least 10 years.

While investing in equities, the insurance companies would be allowed to chip in money for only those companies that have a record of declaring dividends of at least 4 per cent (including bonus) over the preceding five years.

In the case of primary issuance of a wholly-owned subsidiary of a company , the track record would be applicable to the holding company.