Insurance Bill to help firms’ capital infusion | india | Hindustan Times
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Insurance Bill to help firms’ capital infusion

india Updated: Apr 18, 2011 22:59 IST
Mahua Venkatesh

Insurance firms will soon be allowed to access newer instruments to shore up their capital base. The Insurance Bill, which is pending in the Parliament, seeks to make it easier for insurance companies in the future to go ahead with their plans on capital infusion through these hybrid instruments.

Once the Bill gets nod from the Parliament, Insurance Regulatory and Development Authority (IRDA) will be armed with more powers and could eventually take independent decisions on such issues. The government is mulling the option of allowing insurance companies to raise ‘tier II’ capital using sub-ordinate debt instruments and other products similar to ones used by banks.

“Insurance industry is capital intensive and there is need to make it easier for the companies to tap various sources of capital and we hope that this aspect is taken care of in the bill,” TR Ramachandran, CEO and managing director, Aviva Life Insurance, told HT.

At present, insurance companies largely depend on equity infusion by promoter companies to strengthen their capital base. The government is yet to finalise norms for the initial public offer (IPO) for insurance companies. This has limited their fund-raising options as raising capital by listing on bourses, unlike banks, are not yet allowed.

The Bill, once turned into law, would also allow foreign direct investment capital to be raised to 49% from the current 26%.

Insurance companies have to maintain a minimum capital base of Rs100 crore.

Several foreign insurers such as South Korean major Samsung Life Insurance, French firm Scor Global Life and Japanese major Mitsui Sumitomo Insurance Group and Canada based Manulife have shown interest in tapping the market.

However, the IRDA in its guidelines for Unit Linked Insurance Policies (ULIPs) —hybrid life insurance products — has capped surrender charges of policies while slashing agent commissions. The move, would prevent mis-selling and ensure that charges are more transparent but will reduce profitability of companies.

“Many are redrawing their strategies after the guidelines,” an industry source, who did not wish to be identified said.