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Sunday, July 3, 2011

IRDA's guidelines on IPO of Life Insurance companies.

The Insurance Regulatory and Development Authority (IRDA) has asked for feedback and recommendations on their newly proposed guideline formally called The IRDA (“Issues of Capital and Disclosure Requirements for Life Insurance Companies”) Regulations, 2011. The guideline maintains that the life insurance companies in India wishing to go public must have spent at least 10 years in the business and have must showed a satisfactory profit record in the past six quarters. In simple words it would consider only the frontrunners in this business. Currently only two insurance companies, viz. ICICI Prudential and HDFC Standard Life Insurance, meet the 10 year eligibility criteria. However if they wish to raise an IPO, they have to first get the approval nod from IRDA and only then can they approach SEBI. Apart from the tenure and profitability, the IRDA would also consider the company specific risk factors and the transparency of the company’s disclosures before they give the final nod.

In a way the new guideline provides security to the common man because it shall endorse only those companies who are serious in this business and have done well. While on one side it provides security, on the flip side it handicaps an important business aspect of the life insurance companies. The Section 6A of the Life Insurance Act allowed transfer of share below 5 % without the approval of any regulator. But if this new guideline comes into effect, it shall override this benefit for a period of 10 years. Keeping all other aspects aside this can prove to be a direct hit on the mergers and would lay the platform for a highly competitive life insurance business.

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