Prudential regulators tend to focus on low probability but high impact risks, or ‘tail end risks’, and a concern about the what-ifs in the event of extreme impacts. Of course, checks and balances exist within insurers, but without prudential oversight, competitive forces alone are not always compatible with adequately addressing tail end risks.
It also provides that transactions in such derivatives, as had been specified by RBI from time to time, shall be deemed always to have been valid.