IRDA may ease IPO investment rules for insurers
Life insurers may be allowed to subscribe to public issues of companies with high IPO rating by a credit rating agency.Insurance cover for towing on the way
By TNN |
MUMBAI: The insurance regulator may allow life insurers greater leeway to subscribe to initial public offerings of companies with a high IPO rating by a credit rating agency. The move will enable insurers to generate better returns for their policyholders as shares usually rise post listing.
As of now, investment in IPOs of unlisted companies do not constitute approved investments . Life insurers are allowed to invest in IPOs as part of their other approved investments . But these are again subject to eligibility criteria such as a dividend paying track record where the company has declared a dividend for at least seven years in the past nine years. Also, the dividend has to be over 4%.
A few years ago, an exception was made for investment in shares of public sector companies that were disinvested by the government. Insurance companies were barred from investing in unlisted equities as it is difficult to value such shares and the track record of the company is not available.
In May, market watchdog Sebi had introduced a system of IPO grading by rating agencies , which represents their relative assessment of fundamentals of that issue in relation to other listed securities on a five-point scale.
The grading is arrived at using various factors including business prospects and competitive position, financial position, management quality, corporate governance practices and compliance histories. So far, only ratings have been used.
The changes in IPO investment norms are a part of an overall review of investment guidelines for insurance companies done by the regulator. Other proposed changes include allowing insurance companies to invest in mortgage-backed securities and derivatives.
The proposed relaxation was disclosed by CR Muralidharan, member of IRDA, on the sidelines of an insurance seminar organised by ICICI Securities. Mr Muralidharan also disclosed that IRDA was cracking down on misselling and would now ask insurance companies to reveal on illustrations the amount of money from the first premium instalment that would go towards pension and other charges.
At present, insurance companies hand over an illustration sheet to the prospect indication on how their present investment in a unit-linked insurance plan would grow if the fund increased by 6% at the lower end and 10% at the higher end.
While relaxations are good news for companies on the investment front, companies that are looking forward for a relaxation in capital requirements are likely to be disappointed. IRDA has indicated that it is unwilling to allow companies to bring in money by issuing hybrid capital as has been allowed in the banking industry .
As of now, investment in IPOs of unlisted companies do not constitute approved investments . Life insurers are allowed to invest in IPOs as part of their other approved investments . But these are again subject to eligibility criteria such as a dividend paying track record where the company has declared a dividend for at least seven years in the past nine years. Also, the dividend has to be over 4%.
A few years ago, an exception was made for investment in shares of public sector companies that were disinvested by the government. Insurance companies were barred from investing in unlisted equities as it is difficult to value such shares and the track record of the company is not available.
In May, market watchdog Sebi had introduced a system of IPO grading by rating agencies , which represents their relative assessment of fundamentals of that issue in relation to other listed securities on a five-point scale.
The grading is arrived at using various factors including business prospects and competitive position, financial position, management quality, corporate governance practices and compliance histories. So far, only ratings have been used.
The changes in IPO investment norms are a part of an overall review of investment guidelines for insurance companies done by the regulator. Other proposed changes include allowing insurance companies to invest in mortgage-backed securities and derivatives.
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The proposed relaxation was disclosed by CR Muralidharan, member of IRDA, on the sidelines of an insurance seminar organised by ICICI Securities. Mr Muralidharan also disclosed that IRDA was cracking down on misselling and would now ask insurance companies to reveal on illustrations the amount of money from the first premium instalment that would go towards pension and other charges.
At present, insurance companies hand over an illustration sheet to the prospect indication on how their present investment in a unit-linked insurance plan would grow if the fund increased by 6% at the lower end and 10% at the higher end.
While relaxations are good news for companies on the investment front, companies that are looking forward for a relaxation in capital requirements are likely to be disappointed. IRDA has indicated that it is unwilling to allow companies to bring in money by issuing hybrid capital as has been allowed in the banking industry .
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