Insurance firms face stringent pre-IPO norms

Income future 5-year financial statements, standard formula to calculate valuation on cards.

The Insurance Regulatory Development Authority (IRDA) is planning to introduce stringent disclosure norms for firms that plan to list on the stock market.
IRDA is likely to make it mandatory for an insurance company to disclose financial statements of the last five years before it files for an initial public offer (IPO) to raise money from the stock markets to bolster its capital base.
The regulator will also make it mandatory for firms to adopt a standard methodology for calculating “embedded value (EV)” (see box).

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“The standardisation in valuation would also facilitate comparison across different insurance companies,” said an IRDA official, who did not wish to be identified.
HDFC Standard Life was the first private insurance company in India to disclose its embedded value at Rs 3,380 crore as on March 31, 2010.

Public sector behemoth Life Insurance Corporation (LIC) is planning to work out its EV, government sources said. With assets of more than R11 lakh crore and two crore policy holders, analysts peg LIC’s embedded value at about R2 lakh crore.
The existing law mandates that for launching an IPO, an insurance company needs to operate for at least 10 years.

According to SEBI, a company also needs to register three consecutive years of profit before being listed — a condition not met as most insurers are yet to break even.
Reliance Life Insurance and ICICI Prudential Life Insurance may go in for IPOs. But others differ. “We have adequate capital and companies may not be willing to hit the market as it entails numerous disclosures, which may be cumbersome,” a senior executive of a life insurance company, who did not wish to be identified, told HT.