IRDA News: IPO gate opening for general insurers

Only a dozen companies will qualify to float an initial public offering (IPO) as per the draft guidelines put out by the Insurance Regulatory Development Authority (IRDA) recently.

The rest 15 out of a total 27 insurers will have to wait to complete 10 years of operations.

Eight out of 23 private general insurers and four public sector insurers make the cut.

These include National Insurance Co, Oriental Insurance Co, New India Assurance and United India Insurance from the public sector and Bajaj Allianz, Reliance General, Tata AIG, Iffco Tokio, Royal Sundaram, Cholamandalam and HDFC Ergo from the private sector.

IRDA has invited comments from general insurers on the guidelines till October 30. It is expected to float final rules two months after that, meaning the final green signal could come somewhere early next year if all goes well.

IRDA has specified that the players should meet the prescribed solvency margin, which has been relaxed from 1.5 to 1.3 for two years, to offset the losses in the motor pool.

Also, the Securities and Exchange Board of India regulations require entities to have posted a net profit for three consecutive years prior to a flotation.

That rule, if enforced, would exclude all private players barring Bajaj Allianz General, but all the four public ones qualify.

“IRDA has been trying hard to get concessions on the profitability norm so that more companies could participate in the IPO,” said a source familiar with the development said. “But it hasn’t succeeded.”

The four public sector general insurers posted significant profits last fiscal, but their underwriting gains were hit due to losses in the third-party motor pool and group health portfolios.

General insurers, however, are unlikely to rush to float.

“This is the right step from the regulator, but we don’t expect a rush to go public as this may not be the best of times to enter the capital market,” said Amarnath Anantanarayan, CEO, Bharti Axa General.

A senior official with a public sector insurer agreed saying the focus now is profitability rather than flotation.

“Insurers today are more keen on more than the current 26% foreign direct investment (FDI) than IPO,” said a senior official from the industry requesting anonymity.

Earlier, the Scoda Committee of SEBI had approved its norms for general insurers. It has also recommended that those intending to float should disclose in their offer document details of claims arising out of catastrophic losses that could materially and adversely impact profitability or cash flows.

The offer document, IRDA suggested, would outline industry-specific risk factors relating to interest rate, liquidity, catastrophes, re-insurance, regulations and market growth.

Insurers also have to disclose financial information at regular intervals to IRDA.

Rules on advertisements, objects of issue, definition of promoters and disclosure with regard to uniform financial denomination have also been laid out.

IRDA said it would prescribe the extent to which promoters shall dilute their respective holding, and the maximum subscription that could be allotted to any foreign investors, as well as the lock-in for promoters.

And no general insurer can approach SEBI for an IPO without seeking prior approval of IRDA.

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