The move, being mulled by the Union finance ministry with the help of the Reserve Bank of India (RBI), would also help the government nudge the industry towards its target of insurance for all by 2047, these people said on the condition of anonymity.
For insurers, investing in these 50-year on-tap bonds would provide them with a stronger financial cushion needed to operate a business that handles long-term contracts. Life insurance companies, for instance, give out policies that may span decades.
Insurance companies use money from premiums collected—and their reserves—to invest in bonds and equities. Typically, they invest the bulk of the monies in fixed-income instruments like bonds so that the assured interest income can help them manage customer claim payouts as well as operational expenses and business expansion over a long period.
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The extended maturity of the 50-year bonds would provide the stability and predictable returns that are essential for insurers managing large policyholder obligations, the people cited above said.
“The need for longer-tenure bonds stems from the finance ministry’s assessment that highlights the need for a secure long-term investment vehicle to help insurers mitigate potential asset-liability mismatches,” the first person mentioned above said.
Meanwhile, the second person cited above said that while the government is considering an on-tap 50-year bond issuance, no dedicated allocation has been set aside for insurers. “Expected in FY26, the issuance could provide insurers with a stable, long-term investment avenue while easing regulatory capital constraints,” the second person said.
A standing committee on finance had earlier estimated that the insurance sector requires capital worth ₹40,000-50,000 crore to address the issue of under-insurance in the country.
Queries sent to the ministry of finance were unanswered till press time.
To be sure, bonds issued by the government—of any duration—can be lapped up by various entities, including insurance firms, pension funds and banks, among others.
Industry positive on move
Industry reactions have been on the positive side. “I see significant interest from insurance companies because we do have long-term liabilities when we give long-term guaranteed offerings as part of our proposition to our customers,” said Tarun Chugh, MD and CEO of Bajaj Allianz Life Insurance Company. “I see this particularly being good for non-par saving plans with a long-term tenor and for annuity products.”
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Chugh said this is particularly relevant “because we cannot expect that interest rates will always remain where they are for 50 years. Hence, customers would want long-term guarantees. And that is where this comes in very handy”.
Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap Llp, a financial advisory firm, said that earlier issuances of 30-year and 40-year bonds have seen robust investor participation, particularly from long-term liability-driven investors such as insurance companies and pension funds.
“The oversubscription in these segments underscores the growing appetite for duration, as insurers seek duration-matched assets to mitigate asset-liability mismatches and optimize capital efficiency under Irdai’s (Insurance Regulatory and Development Authority of India) solvency norms,” he said. The Irdai requires insurance companies to maintain a minimum solvency ratio of 1.5. This means that the required solvency margin (RSM) is 150%.
Srinivasan further added that the introduction of a 50-year sovereign bond would be a natural progression in the government’s debt management strategy, as it not only caters to insurers’ demand for stable, risk-free long-term assets, but also aids the government in smoothing its redemption profile, reducing refinancing risks, and extending the duration of its overall debt stock.
“Moreover, the introduction of an on-tap issuance framework for ultra-long bonds would provide greater market depth and flexibility, allowing institutional investors to calibrate their exposure dynamically without distorting secondary market liquidity. This move aligns well with global best practices,” he said.
The background
An on-tap bond, also known as a tap bond or tap issue, allows an issuer to raise additional funds by issuing more bonds with the same terms as an existing series, ensuring quick and efficient capital infusion. In contrast, a regular bond is a standalone issuance with unique terms. The key advantage of a tap bond is that it builds on an existing bond structure, eliminating the need to create a new issuance each time capital is required.
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Meanwhile, the Irdai had agreed with the standing committee’s recommendation to issue on-tap bonds with maturities of up to 50 years to provide insurers with long-term investment options.
However, the insurance regulator believes earmarking a portion of these long-dated securities for insurers from the government’s annual borrowing programme may be unnecessary, as it would obligate insurers to subscribe, according to a recent response by the finance ministry in Parliament.
Additionally, the Irdai has noted that in November 2023, the RBI had already issued 50-year securities worth ₹30,000 crore. Any additional quota of higher-tenure bonds up to 50 years will be issued purely on need-based requirements.
Anirudh Laskar contributed to this story.