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| Irda for even dilution of holdings in IPOs |
| BS Reporter / Mumbai Sep 29, 2010, 00:41 IST |
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Listing norms expected soon; also working on rules for ULPs.
Indian promoters of insurance companies and their foreign partners will have to dilute stakes in proportion to their existing holdings at the time of going public, according to the insurance industry regulator.
Speaking to reporters on the sidelines of a CII event here on Tuesday, J Hari Narayan chairman of the Insurance Regulatory and Development Authority (Irda), said, “From the regulatory perspective, when the dilution happens, it must be even. Once they go into an IPO (initial public offer), we will ensure that the relative dilutions by domestic and non-domestic investors are on a par.”
He added the situation of foreign players acquiring a majority share in insurance joint ventures would arise only once the Bill allowing foreign partners to increase their holdings to 49 per cent, from 26 per cent at present, was passed.
Foreign partners are calling for more clarity on shareholding norms after the Bill is passed.
“There seems to be a misapprehension in India that the moment the insurance Bill is passed, the holdings of foreign companies in Indian insurance companies will jump immediately from 26 per cent to 49 per cent,” said Gerry Grimstone, chairman of Standard Life, which is in a life insurance joint venture with HDFC for the past 10 years. “Every company has a different agreement, which may or may not change. The law has to be clarified on foreign holding so that the parties can work out what will be the final shareholding and how the IPO will be conducted.” Said Hari Narayan: "Any agreement... will be subservient to the law of the land, so it may be premature to try and presupose what might be the situation.”
Cap on infra bonds
The regulator also plans to put in place caps on the amount of funds Life Insurance Corporation (LIC) can raise through infrastructure bonds.
“We have certain regulatory concerns there and that is why we are going to put some limits and restrictions. We will put some restrictions on the size of such offers,” Hari Narayan said.
LIC is the only insurer permitted to issue infrastructure bonds. Apart from LIC, IFCI Ltd, IDFC and non-banking financial companies designated as infrastructure finance companies by the Reserve Bank of India are allowed to issue such bonds.
LIC has headroom to raise about Rs 5,000 crore through infrastructure bonds, according to the finance ministry norms.
IPO and M&A
The insurance regulator is working on listing norms to allow life and non-life companies to tap the public markets for capital. Some life insurance companies are soon going to complete 10 years of operations. The chairman added the norms were with the capital markets regulator and were expected shortly.
At the same time, the regulator is working on merger and acquisition norms. On the matter of Reliance General Insurance proposing to acquire a south-based insurer, Hari Narayan said there were certain issues which they were trying to resolve.
Universal life policy (ULP)
After restructuring unit-linked insurance policies, the regulator is working on bringing in regulations in the universal life space. Because of the nature of the product, the regulator felt it was important to regulate the product, said Hari Narayan. ULPs are flexibile and their tenures, premiums and sum assured can be changed in the middle of the policy’s term.
“Universal life policies are akin to Ulips in certain ways and certain benefits and flexibility they have are similar to term products. This is a new kind of product in the Indian market. We are going to come up with the guidelines,” he said.
Portable health products
The regulator is working on portability in health insurance and some areas of motor insurance. Last year, the General Insurance Council proposed a portable health cover for a sum assured of Rs 1 lakh where pre-existing diseases will be covered after four years of a health policy being taken. “We have floated the idea and it is open for discussions. Portability is something the country is ready for. You can see portability in many spheres of activity. Largely, it will be for health and to some extent for motor,” said Hari Narayan.
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