Insurance companies can now go for IPOs

If you want to be a part of the burgeoning growth offered by the Indian insurance industry, you will soon be able to do so. As per the recently announced guidelines by the Insurance Regulatory and Development Authority (Irda) , insurers that have completed 10 years in the business will be allowed to raise capital from the market through initial public offerings (IPOs).

This opens up new opportunities for investors as 11 of the 23 insurance companies present in the Indian market will be eligible for raising money from the market. However, the timing of the announcement may not be the best considering equity markets are still hung-over from the global crisis and IPOs are not being met with great enthusiasm.

"We are unlikely to see an immediate queue of insurance companies lining up IPOs as most insurers are yet to become profitable," says Sudip Bandyopadhyay, managing director and chief executive officer, Destimoney Securities. Insurance companies would not get good valuations and if a company is not profitable, investors are unlikely to buy it. Only a few insurers have started making small profits.

For the last few years, the insurance industry has seen a robust growth of 40-50%, primarily riding on back of the successful unit-linked insurance plans (Ulips). However, the industry seems to have stagnated as of now, which can be attributed to a change in the Ulip guidelines, making them less attractive for distributors, as well as the volatility in the market.

Analysts expect the industry to regain momentum over the next 1-2 years considering the fact that insurance penetration is very low.

"Look at insurance as a long-term business and do not expect overnight results," says Bandyopadhyay. In developed markets like the US and Europe, publicly listed insurers have raised money from the market after being in existence for 30-40 years.