IPO, break-even plans of insurers likely to be delayed

Life insurers may have to postpone their public listing plans and take longer to break even than originally anticipated, as a result of the new unit-linked insurance policy norms which take effect from Wednesday.

“Valuations are likely to be affected after the new guideline kicks in. Insurance companies will wait longer to list for a better valuation. They will focus on higher productivity to improve valuation,” said G Murlidhar, chief operating officer, Kotak Life Insurance.

There is no standard method for evaluating a company. Most insurers have not disclosed their embedded value or the valuation, in the absence of a standard industry norm.

“We might announce statutory break-even but cost break-even would take a little longer,” said Rajesh Sud, managing director and chief executive officer of Max New York Life.

“We plan to go public in the second half of the next financial year. Financial year 2011-12 is the time when we expect the expense overrun to come down. There will be some strain on capital. It will take 12-18 months before we restructure our business model,” said Vibha Padalkar, chief financial officer, HDFC Standard Life.

Present regulations allow insurance companies to list after completing 10 years of operation. In October, HDFC Standard Life will be the first insurer to complete 10 years. ICICI Prudential will complete it in November. Birla Sun Life will be eligible to tap the public market in January and SBI Life, led by the country’s largest bank, can go to the public market for funds in March.

“The capital requirement may stretch slightly but we have to see how things pan out,” said Deepak Sood, MD and CEO, Future Generali Life Insurance.

In a study, Edelweiss said valuations would fall due to lower new business margins and growth will be in the range of 25-30 per cent. Insurers with high operating expenses and commission payouts will be most impacted.

A recent HSBC research report said insurance companies may not go for an initial public offer (IPO) until the foreign direct investment (FDI) limit was raised. “Indian insurance IPOs are unlikely until the FDI limit is raised, as the foreign partner understandably prefers to raise its stake ‘offmarket’ first,” the report said.

The recent raft of policyholder-friendly Ulip regulations will negatively impact margins and could lead to a shake-out of the agency sales force channel, it said.