IRDA issues draft listing norms

MUMBAI: Insurers need to either have embedded value ( EV) twice the paid-up capital or a profitable track record of three years to tap the capital market.

A draft guideline issued by the insurance regulator has said a company can reduce its stake only if it has reported net profit in at least three of the preceding five financial years, or its embedded value is at least twice its paid-up capital.

The regulator will issue a separate guideline on a standard method for calculating EV. Embedded value is the sum of the shareholders' net assets and the value of its in force business. The EV calculation has to be prepared by two independent actuarial or auditing experts.

"We need to see whether premium forms a part of the share capital," said Abhijit Gulanikar, chief investment officer of SBI Life. Most companies do not disclose their embedded value at present. There are different ways to calculate EV. In the issue of capital and disclosure guidelines for life insurance, the Insurance Regulatory & Development Authority (Irda) said a company will be allowed to list the shares under the provisions of Section 6AA, only on completion of 10 years from the commencement of operations.

So far, HDFC Life, ICICI Prudential, SBI Life and Max New York Life have completed 10 years of operations. The guidelines are similar to the IPO norms applicable to most companies. Insurance companies need to be compliant with the expenses of management, solvency requirements and corporate governance. A company should have a good record of policyholder protection and should fully comply with the disclosure norms as prescribed by the regulator.