12 year lock in for PE Cos

IRDAI may ask the private equity firms to come up with lock in period of 10-12 years to ensure that their capital is invested for a longer tenure. The long term investment shall   support the growth of insurance companies and safeguard the interest of policyholders’ interest.

It takes 10-12 years for insurance companies to overcome its gestation period and pay its shareholders. Private equity is one of the most unstable forms of capital looking for appreciation and exit, so a lock-in period is required.

Private equity firms are involved in buying stakes of insurance companies both as investors and promoters. Chennai-based Star Health & Allied Insurance Company has many private equity investors including Apis Partners and ICICI Ventures. Recently, IRDA has given licence to Narayan Murthy-back Catamaran to invest a large stake in Acko General Insurance.

Global private equity firms like KKR and Temasek had bought 3.99% stake in SBI Life before its IPO. Similarly, private equity firms including Warburg Pincus and IIFL Special Fund had bought 12.18% in ICICI Lombard General Insurance.