Insurers keep perpetual bonds at bay

Insurers are staying away from tier-1 perpetual bonds issued by banks because of the lack of liquidity in the instrument and pricing issues in it. Insurance companies also say as the instruments are a mix of debt and equity, they are not comfortable investing in these.  he head of fixed income at a life insurance company said there have been some issuances of these Basel III-compliant bonds but they’d stayed away.  “Because they are bank bonds, there have been some demands from provident funds. So, they are priced much lower than what we want it to be,” he said.

“In perpetual bonds, there is not much of liquidity in the market. In the past, we have invested in these. However, as an insurance market player, we prefer bonds with secondary market liquidity,” said Nirakar Pradhan, chief investment officer, Future Generali India Life Insurance.