IRDA would be coming out with the IPO norms for insurance companies in the next few days. Insurance companies which have completed 10 years of operation would be able to tap the equity markets for fund raising. HDFC Life , one of the earliest private entrants, would be eligible to tap the equity markets.
In an obvious and expected move, the company has mentioned that it will defer the IPO plans till at least next year as the current valuations are not attractive at all. Profitability is under pressure and the life industry is set to record a degrowth this year. In the light of the new regulations on ULIPs with lower charges and lower commissions, the life insurance industry has been recording lower sales and the margins have come under intense pressure.
However, we feel that the current changes brought about will strengthen the life insurance industry in the long run, and it very well addresses the systemic flaws in the system. The industry will emerge the healthier for it in the long run, and ultimately will lead to higher valuations for the life insurance industry. The same cannot be said about the general insurance industry where the public insurance companies are operating at a combined ratio of 135! There are systemic problems there among the non life public sector companies which needs to be urgently addressed.
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