Listing of insurance firms: SEBI maintains profitability criteria

The Securities and Exchange Board of India has said there was no need to relax the three-year profitability criterion for listing of insurance companies.

 

A sub-group appointed by SEBI said insurers could still raise the capital through book-building.

The IRDA had submitted that insurers could find it difficult to fulfil the profitability criteria as they required six to seven years to break even. Hence IRDA enquired whether insurers could still raise capital through fixed price issues.

The SEBI panel has done away with the need for a monitoring agency to oversee how the money raised is deployed.

It recommended that insurers raised capital only to fulfil capital adequacy requirements according to IRDA norms.

The sub-group said that detailed insurance industry-specific risk factors be part of the offer document.

The risks include claims arising out of catastrophe, faulty pricing leading to differences in future actual claims, deviations in mortality rates and regulatory restrictions on investment by insurers.

Further, general insurers are required to emphasise the risks related to their inability to obtain re-insurance, regulated tariffs and increase in claim liability of motor third party due to court judgments.

Taking cue from world

“International experiences have been taken into account by the SEBI Committee while making such recommendations. Reasoned recommendations have been made requesting IRDA to either amend insurance laws to fall in line with SEBI ICDR Regulations or keep specific additional compliances/ safeguards without there being a need to amend the general provisions of ICDR Regulations.

“The recommendations are likely to protect investors interest due to greater disclosures/ transparency and at the same time help in avoiding/ mitigating conflicts between the regulatory provisions of SEBI and IRDA,” said Mr Tejesh Chitlangi of Finsec Law Advisors.

The SEBI panel also recommended that insurers should provide an overview of the insurance industry, disclose financial information according to IRDA format and also familiarise investors with a glossary of insurance terms.

The group also recommended additional disclosures according to best practices followed globally. These pertain to business details such as premium, distribution network, persistency, investment yield, re-insurance and new business achieved profit.

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