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Friday, January 14, 2011

IPOs of Life Insurance Companies in FY11-12!

IPOs of Life Insurance Companies in FY11-12!

Come the next Financial year, and many of the private life insurance companies of India will be able to tap the Indian Capital Markets through an IPO. IRDA is in the process of finalizing the IPO guidelines, and would be completing it before the end of this fiscal year. Thus, many of the Life Insurance Companies which were amongst the first to start when privatization of Insurance Companies was allowed at the turn of the century will be able to tap the markets to raise much needed funds. It will also be interesting to note the valuations that the market gives to these private life insurance companies. For the non life insurance companies, the wait will be a little longer as IRDA will take some more time to finalise the norms.

As far as the Life Insurance IPO norms are concerned, these are some of the basic terms that are under consideration:

  1. The Life Insurance companies should be in operation for 10 years. However, some minor relaxations might be allowed in this case. Companies such as ICICI Prudential, HDFC Life etc would be eligible while Reliance Life might need to wait for a year or so
  2. It is generally considered that a Life Insurance company needs around seven years to achieve operational breakeven. There might be a clause which states that the Life Insurance Company should have been profitable for the last three years prior to the IPO
  3. The Insurers will need to come up with disclosure of risk factors specific to the companies

We will also track closely if the 800 pound gorilla , LIC, also shows some interest in being listed. In a separate blog, we had discussed that if it were to be listed, LIC might well be India’s largest company by market capitalization.

One factor which might depress the valuations for the life insurance companies are the IRDA rules effective Sep 2010, wherein strict levels have been determined for the commission levels, surrender charges and policy administration charges. This might have a significant negative impact on the volumes and profitability of unit linked life insurance products.