Life insurers can now access the capital market to raise funds.
The government on Thursday notified the final guidelines on initial public offerings (IPOs) by life insurance companies framed by Insurance Regulatory and Development Authority (Irda) and approved by the Securities and Exchange Board of India (Sebi) last month.
The insurers have a choice of raising capital through a public issue, a divestment of promoters’ share, or private placement.
Industry officials and intermediaries alike have hailed the gazette notification.
“We welcome the guidelines announced by the Irda. This is an important enabling step for life insurers to plan their capital raising strategies. Companies will, however, plan their individual strategies depending on various factors,” said Puneet Nanda, executive director, ICICI Prudential Life.
Sandeep Asthana, country head- India, Sun Life Financial concurred. “Listing of insurance companies helps in price discovery. Greater amount of transparency can now be expected from the operation of these companies,” said.
“The guidelines are very well put out, having gone through 4-5 levels of delegation, and since there was good coordination between Sebi and Irda, they seem to have taken a good shape,” said Ashvin Parekh, partner- national leader- global financial services, Ernst & Young.
The final guidelines are in line with the draft recommendations issued earlier this year.
The regulator mandates that life insurers which have completed 10 years in the business are eligible for raising capital through the capital market.
Such companies should have an embedded value — the sum of present value of future profit and the adjusted net worth of a company — of at least twice the paid-up capital.
“Since, valuation is based on embedded value, the insurer’s in-house actuary and then the appointed actuary need to approve the same in order to complete the IPO procedure,” said Suresh Agarwal, executive vice president, head - distribution - individual business and strategic initiatives, Kotak Life Insurance Company.
A life insurer must also have maintained the prescribed regulatory solvency margin, which is 150% of the total liability, according to the guidelines.
Irda ruled out the profitability criterion for participating in capital market after stakeholder consultations.
“I think it’s a positive move for the industry that the regulator removed the profitability criterion. It’s a good decision because many life insurers, even after completing 10 years may not be making profits,” said G V Nageswarara Rao, managing director and CEO, IDBI Federal Life Insurance Company.
There are 23 life insurers in India with total assets upwards of Rs12 lakh crore.
Reliance Life Insurance, ICICI Prudential Life Insurance, HDFC Standard Life Insurance, Max New York Life Insurance and SBI Life Insurance are among the companies eligible for tapping the capital market.
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