Mumbai: The insurance regulator is working on an operational framework that will allow insurers to undertake repo and government securities lending transactions, said people familiar with the matter.It comes after amendments to the Insurance Act that explicitly permit encumbrance of assets for such activities, which will provide insurers with greater flexibility in liquidity managementThe enabling provision was introduced through the Sabka Bima Sabki Raksha amendments to insurance laws earlier this year. The amended law creates an exception to the long-standing requirement that assets backing policyholder liabilities remain free of encumbrances, charges, hypothecation or liens. It permits insurers to participate in repo, reverse repo and government securities lending transactions undertaken in accordance with the Reserve Bank of India (RBI) Act and related directions."The law now permits repo and securities lending transactions and, therefore, the regulator is working on issuing a draft operational framework followed by a final one after feedback from industry," said one of the persons, who did not wish to be identified.The proposed framework is expected to lay down settlement mechanisms, eligible trading platforms, collateral management standards, exposure limits, counterparty eligibility criteria and risk-management safeguards before insurers are allowed such transactions.Insurers are large holders of government securities. According to the RBI's latest annual report, insurance companies held 24% of the country's outstanding government securities stock as of March, making them the second-largest holders after commercial banks, which accounted for 34.6%. Provident funds and the RBI each held 10.9%.The insurance sector manages assets exceeding ₹74 lakh crore, with regulatory rules requiring more than half of the investments to be deployed in approved securities, particularly government bonds. According to the RBI, nearly 59% of their investments are held in government securities, with another 30% parked in approved investments.