Insurers put IPO plans on backburner

Life insurance companies have put their plans to list their shares on the stock exchanges on the backburner, though they are hopeful of Parliament's nod for the Insurance Bill, which will increase the foreign investment limit, during the Winter session.

“Any one going for an IPO will wait for Parliament to clear the Bill as a lot of ground realities could change,” U S Roy, SBI Life Managing Director, said.

Industry sources, however, said that there is a debate going on between the government and the Insurance Regulatory and Development Authority (Irda) over the mandatory listing of insurers after 10 years.

Irda is of the opinion that insurance companies should complete 10 years of operations before listing. While Reliance Life has already approached the government for an initial public offering (IPO), SBI Life may be the second insurer to come up with an IPO. Since Reliance Life is 100 per cent subsidiary of the Anil Dhirubhai Ambani Group, it is not waiting for the Bill to be passed.

While SBI Life will approach the government and regulator immediately after the Bill is passed, HDFC Standard Life plans to go for a listing in 2010. Most insurers will take this route to raise capital.

SBI Life was the first insurer to report profits, but reported losses in 2008-09. For the year ended March, 2009, it posted a net loss of Rs 27 crore.

The life insurance subsidiary of State Bank of India, part owned by Cardiff, a BNP Paribas company, has jumped to the first position among the private insurers.

The company has decided not to infuse additional capital this year.

According to the valuation estimates of life insurance companies by broking firm India Infoline, ICICI Prudential Life insurance is valued at $ 3.67 billion, followed by SBI Life at $ 2.62 billion, Bajaj Allianz at $ 2.3 billion and HDFC Standard Life at $ 1.62 billion. The broking firm said that the valuations are based on the total capital infused in the life insurance ventures, due to the lack of disclosures by the insurers.

At present, insurance companies do not disclose their embedded value. But Irda is planning to make it mandatory for the insurers to disclose their embedded value.

Currently Max New York Life is the only company to have disclosed. Irda is working on the valuation process and the methodology for reaching to the embedded value.

“Possibility of an IPO will be difficult if the FDI limit is raised. Either FDI limit will be raised or the government will do away with the mandatorily listing after 10 years of operation in the amendment to the Insurance Bill,” said Paresh Parasnis, HDFC Standard Life Principal Officer.