Irdai to Make Listing a Must for Large Insurers

SBI Life, ICICI Prudential Life and HDFC Life could lead the way

The Insurance Regulatory and Development Authority of India (Irdai) will make it mandatory for large life insurance companies to list within a specific period. So far, none of them, barring one, has shown interest in going to public, even after completing 10 years of operations.

According to sources familiar with the developments, private-sector life insurance companies with assets under management (AUMs) of more than Rs 60,000 crore will be the first ones that will have to list. The three largest insurance companies at present are SBI Life Insurance,ICICI Prudential Life Insurance and HDFC Life. Only HDFC Life has so far shown any inclination to list.

As on March 31, 2015, SBI Life had a total AUM of Rs 71,339 crore, HDFC Life had Rs 67,000 crore, and ICICI Prudential Life had Rs 1,00,183 crore.

According to Irdai norms, a company has to be in the insurance business for 10 years to be eligible to list on the equity market. The regulator considers the financial performance, capital structure after offer and solvency margin, among other factors, to give its approval.

Regulatory officials said this was an enabling provision and they would use it if required. "For life insurers with huge operations, we do not want one or two partners to share the risks and returns. It should be listed so that the capital could be shared with shareholders," an official said.

In an exposure draft 'Issuance of Capital by Indian Insurance Companies transacting Life Insurance Business', Irdai said it would do so if needed. Such a company has to, within a period of one year from the date of such direction, comply with the direction issued.

"The authority might direct an Indian insurance company transacting in the life insurance business to go for a public issue if the circumstance so warrants," Irdai said in the exposure draft.

It is not clear if Life Insurance Corporation (LIC) will come under the purview of this direction. Being a state-owned entity, LIC's initial public offering (IPO) decisions will be taken by the government. However, Irdai does have the power to direct with respect to its public issue.

Though it was earlier anticipated that life insurers would bring out IPOs soon after completing 10 years in the industry, none of them did so. That was due to stress in business, low foreign direct investment cap (it has now been raised to 49 per cent) and poor market conditions, among other things.

Insurance officials said this was a step by the regulator to increase transparency. "It was implicit that each life insurer would bring out an IPO after completing 10 years. However, even after 10-12 years, only one-two companies have shown intent. The regulator wants to nudge large players to list, so that others follow suit," said the chief executive of a private life insurer.

Earlier, HDFC had shown intent to bring out an IPO for its life insurance company, HDFC Life, though HDFC Chairman Deepak Parekh said in the company's annual general meeting in July that an issue was at least a year away.

SBI Life has said it is not looking to list immediately, though its parent State Bank of India (SBI) is divesting a stake of up to 10 per cent in SBI Life Insurance.

Irdai chairman T S Vijayan had recently said that listing of insurers would bring about greater transparency and accountability. He had also said listing of insurers would bring in the scrutiny required for efficient management of companies.

The chief executive of a bank-promoted insurer explained that all companies had entered the life insurance business with a long-term view of listing. "At least the top four-five players are ready for listing. This will improve the corporate-governance structure," he added.

Reference - http://www.business-standard.com/article/finance/irdai-to-make-listing-a-must-for-large-insurers-115091400033_1.html