IRDA draws insurers divestment map

KOLKATA: Insurance Regulatory & Development Authority (Irda) has decided to issue a scheme of divestment — a set of guidelines on the basis of which promoters of private insurance companies will be required to offload a portion of their stake to the general public within 10 years of commencement of operations.

“According to regulations, insurers will have to mandatorily divest a portion of their stake to the general public within 10 years of commencement of operations, but there are no definite guidelines or scheme of divestment on the basis of which promoters can divest their stake to the general public. This is despite the fact that a large number of insurers have reached the sixth or seventh year of operations,” Irda chairman CS Rao told ET.

“Although the scheme will be notified by the Centre, Irda will have to take the initiative of framing the scheme and guidelines. This will subsequently be examined and notified by the government,” he said. The scheme will apply only to private companies, Mr Rao clarified.

“Work on framing the scheme will be initiated at Irda within six months. After the scheme is notified, insurers will be required to submit their proposal of divestment with the regulator. Nevertheless, no insurer has approached us with the divestment proposal. However, with the 10-year timeframe nearing its end, we have decided to initiate work on the rules and guidelines,” Mr Rao said.

Interestingly, the companies have started appointing agencies for carrying out valuations of their businesses. For example, SBI Life has seen its valuation increase four-fold in six months to $4.5 billion from $1.2 billion.

SBI Life managing director & CEO US Roy said, “For SBI Life, the 10-year period ends in 2010. So, by registering a profit next year, we can list anytime from the next year.”

Companies like ICICI Prudential and ICICI Lombard are in their seventh and sixth year of operation. Similarly, Bajaj Allianz Life and Bajaj Allianz General are in their seventh and sixth year of operation.

Incidentally, the majority of life insurers now require two more years to break even. According to the accounting norms of the life insurance industry, it takes more time to break even if the growth is faster. With more than the expected growth rate achieved by private life insurers, they now require at least two extra years. Incidentally, break even for insurers relates to a situation where the company’s expenses are equal to its income and it is on the verge of making profits.

In the list are companies like ICICI Prudential, Birla Sunlife Insurance, ING Vysya and Bajaj Allianz Life Insurance which will require one or two more years to break even.

A life insurance venture typically requires 6-8 years to start making profits. Most of the companies are in their fifth or sixth year of operation and are yet to make profit.