Tough pre-IPO norms for insurance firm on anvil
20 September 2010
It is reported that insurance firms that plan to list on the stock market will need to comply with stringent disclosure norms.
The Insurance Regulatory Development Authority (IRDA) is set to make it mandatory for insurance companies planning to list on the stock market to disclose financial statements of the last five years, before they file for an initial public offer (IPO).
The regulator is said to be likely to make it mandatory for firms to adopt a standard methodology for calculating ''embedded value (EV)''.
IRDA officials say the standardisation in valuation would also facilitate comparison across different insurance companies.
HDFC Standard Life was India's first private insurance company to disclose its embedded value at Rs3,380 crore as on 31March, 2010.
According to government sources, public sector behemoth Life Insurance Corporation (LIC) also plans to work out its EV. Given its assests of more than Rs11 lakh crore and two crore policy holders, analysts say LICs' embedded value would be about Rs2 lakh crore.
According to existing law for launching an IPO, an insurance company needs to demonstrate 10 years of operations and according to SEBI it also needs to register three consecutive years of profit prior to being listed, a condition that would exclude most insurers as they have not yet broken even.
Reliance Life Insurance and ICICI Prudential Life Insurance may tap the market according to analysts. But according to industry insiders there is adequate capital with the companies and they may not be willing to tap the market due to the numerous disclosures this entails which might be cumbersone.