Life insurers who have been in business for less than ten years will not be allowed to raise funds from the market through initial public offerings (IPOs). The Insurance Regulatory and Development Authority (Irda) is likely to come out with guidelines in this regard soon.
The companies that have been operating in this field for less than ten years but are keen to launch IPOs, have been lobbying hard against this move. However, they have not succeeded in their efforts so far. According to market analysts, the lobbying by these companies is one of the reasons for the delay in Irda not being able to roll out the guidelines for public offerings.
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- The IPO guidelines will deal with norms that the insurance cos would need to fulfil before they would be permitted to access the capital mkts
- The Insurance Act says promoters holding 26 per cent stake in an insurance venture can offload equity after 10 years
- However, the legislation empowers the government to reduce the mandatory waiting period before tapping the capital market
- Present IPO guidelines require a 3-year record of profit- making for a co to float a public issue
- Most insurance cos are yet to reach the breakeven point and are ineligible for launching an IPO under the norms
- Insurance cos want the norm to be relaxed so that this capital intensive sector can tap the primary market to meet its funding requirements
- Their plans have been on hold in the absence of the IPO guidelines for life insurers
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A senior Irda official said that the insurance regulator is not in favour of allowing IPOs by life insurers who have been in business for less than ten years, a condition holding up the IPO guidelines for the sector.
As per the Insurance Act, promoters holding 26 per cent stake in an insurance venture can offload equity after 10 years of operations. However, the legislation empowers the government to reduce the mandatory waiting period before tapping the capital market. According to sources, another reason behind the delay in the roll-out of the IPO norms is the profit-making track record of insurance companies.
The present IPO guidelines as laid out by the Securities and Exchange Board of India (Sebi) require a three-year track record of profit-making for a company to float a public issue. However, most of the insurance companies are yet to reach the breakeven point and thus are ineligible for launching an IPO under the present norms.
Insurance companies want the norm to be relaxed so that this capital intensive sector can tap the primary market to meet its funding requirements. However, their plans have been on hold in the absence of the IPO guidelines for life insurers.
Many private sector insurers, including Reliance Life and HDFC Standard Life, have already shown interest in tapping the capital market to augment their resource base.
Though HDFC Standard Life has completed 10 years of operations, Reliance Life does not meet this criterion.
Recently, Irda chairman J. Hari Narayan had stated that the guidelines for life insurance companies to tap the capital market for funds were awaiting the nod of the securities market regulator Sebi and would be announced soon.
Last month, Irda had notified the disclosure norms, which is necessary for providing details about their operational costs and balance sheets on quarterly and yearly basis. The IPO guidelines will deal with norms that the insurance companies would need to fulfil before they would be permitted to access the capital markets.
The guideline for the IPOs of life insurance firms are said to have been approved by SCADA, a body constituted by Sebi, and is awaiting final nod from the market regulator.
Currently, most of the 22 private life insurers and 17 nonlife players have foreign partners.
The Insurance Act caps foreign direct investment (FDI) in insurance ventures at 26 per cent.
Courtesy: Mail Today 
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