Life insurers should be in biz for 10 yrs to launch IPOs: Irda

The Insurance Regulatory and Development Authority (Irda) is not in favour of allowing initial public offers (IPOs) by life insurers who have been in business for less than 10 years, a condition holding up the IPO guidelines for the sector.

The companies who have been operational for less than 10 years, but want to come out with IPOs, have been lobbying hard against this rider, but have not succeeded in their efforts so far. Industry sources said that this is among the key issues delaying the IPO guidelines.

"Insurers can come out with IPO only after completion of 10 years of operations," a senior official with Irda told PTI.

As per the Insurance Act, promoters having a 26 per cent stake can offload equity after 10 years of operation.

However, the legislation empowers the government to reduce the mandatory waiting period before tapping the capital market.

Many companies want the norm to be relaxed so that this capital intensive sector can tap primary market to meet fund requirements. However, their plans have been on hold in absence of the IPO guidelines for life insurers.

Several private sector insurers, including Reliance Life and HDFC Standard Life, have already shown interest in tapping the capital market to augment their resource base.

Though HDFC Standard Life has completed 10 years of operations, Reliance Life does not meet this criteria.

Recently, Irda Chairman J Hari Narayan said that guidelines for life insurance companies to tap the capital market for funds were awaiting Sebi nod and would be out soon.

"IPO guidelines for insurance companies will be out soon. It has been approved by the Joint Committee of Sebi and has to be approved by the Sebi (board)," Hari Narayan had said.

Last month, the regulator had said that the proposed IPO guidelines for non-life insurance firms were also in the process of finalisation.

The guideline for IPO of life insurance companies are said to have been approved by SCADA, a body constituted by Sebi, and is awaiting final nod from the market regulator.

Currently, most of the 22 private life insurers and 17 non-life players have foreign partners. The Insurance Act caps foreign direct investment at 26 per cent.

According to sources, another reason behind the delay in the IPO norms is profit track record of insurance companies.

The present IPO guidelines of Sebi requires a three years track record of profit for a company to float a public issue.

However, most of the insurance companies are yet to reach the break-even point and thus are not eligible for coming out with an IPO under the present norms.