The Insurance Regulatory & Development Authority (IRDA) will submit its recommendations on valuing insurance companies, disclosures and other requirements that insurers should fulfill in order to raise money through the Initial Public Offering (IPO), to the Securities and Exchange Board of India (Sebi) in the next ten days.
“After receiving our recommendations, the capital market’s regulator will release the IPO guidelines for insurance companies,” said R. Kannan, member (actuary), IRDA. “We expect Sebi to go by what the IRDA suggests on valuing the liabilities of insurance companies.”
The route to the IPO guidelines has three parts to it. One is the finalisation of the Red Herring Prospectus requirements, disclosures that insurance companies will have to make and the methodology that will be used to value an insurance company.
So far private life insurance companies such as Reliance Life, HDFC Standard Life, SBI Life and ICICI Prudential have plans of going public.
Analysts have always found it difficult to value a life insurance company as despite 8 years of operations, companies merely disclose their new business premium on a monthly basis. No information is disclosed on the renewal premium and expense ratios.
When asked if investors would be interested in buying shares of a loss-making life insurance company, Kannan said, “That is for the prospective investor to see. However, one has to see the company in totality as life insurance is a long term business. Today, the company may be making a loss but one should also look at the business potential, market share and other factors to decide.”
From November 2009, insurance companies have to make available information on investment objectives, related third party transactions, risk exposure, policies and management, reinsurance risk and risk mitigation, liability valuation, solvency for the last 4 to 5 years to the regulator besides giving these details to the regulator on a quarterly basis.