Insurers ask central bank to issue zero-coupon bonds

Indian insurers have asked the government to issue new sovereign debt instruments, including zero-coupon bonds, to broaden investment opportunities available to them and to help them manage long-term risks, reported Bloomberg quoting people familiar with the matter.

Insurance companies made the request to the Reserve Bank of India, which has discussed the matter with the Finance Ministry. 

Zero-coupon bonds protect investors from interest-rate and reinvestment risks as they don’t provide periodic payouts. Investors buy them at a discount and receive the full face value at maturity. 

India’s bond market, traditionally dominated by banks, is evolving as cash-rich insurers drive demand for a wider variety of securities and derivatives. Insurance firms have sought the issuance of 20- and 30-year zero-coupon bonds, the people said. 

The RBI and the Finance Ministry did not respond to Bloomberg’s emails seeking comments.

Insurance companies have also asked the government to issue partly-paid bonds, the people said. These are debt instruments partly bought by investors at issuance, while the remaining balance is purchased in instalments over a pre-defined schedule.

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