Life insurers may have to wait a while to go public
They may not be in a position to divest a slice of their promoters' stake to the general public even within the 10th year of operation. Insurance schemes for home owners
By Debjoy Sengupta, TNN |
KOLKATA: If you’ve been waiting to grab equity shares of private life insurance companies enthused by those stellar valuations, you may be in for a disappointment. Life insurance companies may not be in a position to divest a slice of their promoters’ stake to the general public even within the 10th year of operation as required under the present insurance industry laws.
At present, Insurance Development & Regulatory Authority (IRDA) rule makes it mandatory for life insurers to divest a portion of promoters’ holding within 10 years of operation. But this may come into conflict with SEBI’s IPO guidelines.
SEBI regulations require that a company needs to report net profits for at least three consecutive years in order to go for an IPO. Currently, most life insurers are in their sixth or seventh year of operation, and will require at least another two years to report maiden profits. Accordingly, they may be unable to meet SEBI’s IPO eligibility criteria before the 11th or 12th year of operation. In fact, indications are that IRDA may soon extend the 10-year IPO deadline for insurance companies.
A large number of life insurers, including ICICI Prudential, Birla Sunlife Insurance, ING Vysya, Bajaj Allianz Life Insurance, Tata AIG Life and Max New York Life, are already in their sixth or seventh year of operation. And they will take, at least, two more years to register maiden profits. That means these life insurers will not be in a position to register their maiden profits before their eighth or ninth year of operation. So, to meet SEBI’s three-year profits criteria, they won’t be eligible to go for an IPO before the 11th or 12th year of operation.
When contacted on the issue, IRDA chairman CS Rao said: “The present set of insurance law requires an IPO within the 10th year of operation.
However, if it conflicts with SEBI rules, we will tackle it accordingly. The present law requires that this divestment needs to be done as per a scheme that will be worked out by the regulator. This scheme will, in effect, lay down the modalities and the guidelines for divestment and the issue will be taken care of at the time of framing the detailed set of guidelines for IPO. We will also consult with SEBI if necessary.”
Interestingly, the time required to breakeven for an insurer is directly proportional to the growth rate of each company. Which means, higher the growth rate, greater the time required to breakeven. Given the more than 100% growth levels achieved in 2006-07 and phenomenal growth figures registered over the last few year, these insurers will now require a larger time frame than was originally expected.
At present, Insurance Development & Regulatory Authority (IRDA) rule makes it mandatory for life insurers to divest a portion of promoters’ holding within 10 years of operation. But this may come into conflict with SEBI’s IPO guidelines.
SEBI regulations require that a company needs to report net profits for at least three consecutive years in order to go for an IPO. Currently, most life insurers are in their sixth or seventh year of operation, and will require at least another two years to report maiden profits. Accordingly, they may be unable to meet SEBI’s IPO eligibility criteria before the 11th or 12th year of operation. In fact, indications are that IRDA may soon extend the 10-year IPO deadline for insurance companies.
A large number of life insurers, including ICICI Prudential, Birla Sunlife Insurance, ING Vysya, Bajaj Allianz Life Insurance, Tata AIG Life and Max New York Life, are already in their sixth or seventh year of operation. And they will take, at least, two more years to register maiden profits. That means these life insurers will not be in a position to register their maiden profits before their eighth or ninth year of operation. So, to meet SEBI’s three-year profits criteria, they won’t be eligible to go for an IPO before the 11th or 12th year of operation.
When contacted on the issue, IRDA chairman CS Rao said: “The present set of insurance law requires an IPO within the 10th year of operation.
However, if it conflicts with SEBI rules, we will tackle it accordingly. The present law requires that this divestment needs to be done as per a scheme that will be worked out by the regulator. This scheme will, in effect, lay down the modalities and the guidelines for divestment and the issue will be taken care of at the time of framing the detailed set of guidelines for IPO. We will also consult with SEBI if necessary.”
Interestingly, the time required to breakeven for an insurer is directly proportional to the growth rate of each company. Which means, higher the growth rate, greater the time required to breakeven. Given the more than 100% growth levels achieved in 2006-07 and phenomenal growth figures registered over the last few year, these insurers will now require a larger time frame than was originally expected.
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