It is learnt that IRDA might be scrapping the requirement which stated that a life insurance company which desires

to go public needed to be profitable over the past 3 years. This will come as a relief for companies like ICICI Prudential, HDFC Standard Life and Max New York Life which were otherwise eligible togo for an IPO but struggling on the profitability norm. Life Insurance Companies , operating in a business which is capital intensive, has been struggling to raise capital as the IPO norms have been strict. At the same time, they have also been handicapped by the fact that the FDI norm on Insurance has been capped at 26% and not increased to 49%. On the other hand, IRDA has come down heavily on the charges levied by life insurance companies on their customers (effective Sep 1 2010) which has reduced profitability margins of these organizations.

NEW DELHI: Insurance watchdog Irda today said guidelines for public float of life insurance companies will be ready by early February. "Our regulation for initial public offers (IPO) of life insurance companies must be ready in two to three weeks," Insurance Regulatory Authority of India Chairman J Hari Narayan told reporters on the sidelines of IBAI summit. In October last year, market regulator Sebi had approved life insurance companies to issue IPOs. As per the draft guideline compiled by Irda, insurance companies which are in operation for the last 10 years would only be eligible for coming out with IPOs. Also, the present IPO guidelines of Sebi requires a three years track record of profit for a company to float a public issue. However, the non-life insurance companies will have to wait a few months to hit the capital market as Irda is in the process of making a formal proposal to Sebi. "For non-life IPO, we are still to make a formal proposal to SEBI. The proposal is ready...the calculation of economic capital (of non-life insurance companies) that is taking a little time... then we will go forward," Narayan added. 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. As per the disclosure norms in offer document mandated by Sebi, the insurers would have to come up with disclosure of risk factors specific to the companies. Also the offer document would have a glossary of terms used in the insurance sector.

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.

Insurance companies which have completed 10 years of operations are now eligible to go for initial public offer (IPO). Prior to filing of the draft document for issue of share capital or making public offer with the Securities and Exchange Board of India (SEBI), the insurance company should take a formal approval from the Insurance Regulatory and Development Authority (IRDA). For approval, the insurer should have maintained a satisfactory regulatory record, J Hari Narayan, Chairman, IRDA, said in the draft guidelines on Issues of Capital and Disclosure Requirements (ICDR) for life insurance companies announced on Tuesday. The objective of the public issue could be to augment solvency requirement and general corporate purposes. Financial statements for a period of last five years should be provided along with gross premium, cross-selling, operating expenses ratio, investment yield, liability of future policy benefits and manner of arriving at unrealised gain/loss. In addition to meeting the disclosure norms laid down by SEBI in ICDR regulations, any insurance company should also disclose risk factors specific to the insurance companies. An overview of insurance industry, disclosure of financial statements, particulars about the issue and insurers should also be provided. The risk factors to be mentioned in the offer documents should cover risks arising out of insurance risk (mis-estimation and fluctuations in the frequency of claims) besides market, credit, liquidity and operational risks, the guidelines said. The guidelines would come into force after their notification in the Gazette, IRDA added. At present, there are 24 life insurance companies approved by IRDA while about four/five of them would have completed 10 years of operations.

Life insurance companies that have completed 10 years in existence with strong financials to back it up, will now be able to raise money through Initial Public Offering IPO.

According to draft guidelines released by IRDA, life insurance companies that meet the criteria would be able to list their shares.

Eligibility criteria laid down by IRDA states that the life insurance company:

1. Should be in the life insurance business for a period of 10 years from the date of commencement of such business 2. Should have maintained a satisfactory regulatory record with IRDA 3. Should have maintained the prescribed regulatory solvency margin as at the end of the preceding six quarters 4. Should have a record of policyholder protection and the pendency of the policyholder complaints should be satisfactory 5. Should have been fully compliant with the disclosures requirements as mandated in the IRDA Circular 6. Should have been fully compliant with the Corporate governance Guidelines issued by IRDA 7. Should have embedded value of at least twice the paid up equity capital

HDFC Standard Life and ICICI Prudential Life are among the life insurance companies that have completed 10 years in existence. ICICI Prudential Life Insurance Companys Managing Director, Sandeep Bakshi had earlier released a statement that the company is well capitalized and hence not keen on going in for an IPO.

The proposed IRDA Regulations 2011 reads that no issuance and allotment of capital by an insurance company shall be, in any form other than as fully paid up equity shares. The authority will consider the life insurers overall financial position, regulatory record and the proposal for issue of capital prior to giving its formal approval to the proposal to get its shares listed on the stock markets.

Interested life insurance companies will have to first obtain IRDAs consent to make an application. Post this, they may proceed to fulfill any requirements as may be laid by Securities Exchange Board of India (SEBI) under the ICDR Regulations 2009.

IRDA has also asked the life insurance companies to get back with any suggestions or comments by June 30, 2011.

IRDA has released a draft IPO guidelines for Life Insurance Companies. When can Life Insurers apply for an IPO? 1. Only on completion of 10 years from the date of commencement of operations by the Insurer or such other period as may be prescribed by the Central Government. 2. The manner of divestment by the insurance company may be through any of the following options: (i) Issue of capital under the ICDR Regulations; (ii) Divestment of equity by one or more of the promoters through a public offer for sale under the ICDR Regulations; . and/or (iii) Issue of capital/divestment of equity stake through other than (i) and (ii) above. 3. Prior to filing of the draft document for issue of share capital or for making an offer of sale to public with SEBI shall approach the Authority for its formal approval . Eligibility Criteria for IPO The insurance company has to file the proposal with IRDA with following minimum eligibility criteria 1. The insurance company should have been in the life insurance business for a period of ten years from the date of commencement of such business or such other period as may be prescribed in the Insurance Act/by the Central Government); 2. The insurance company should have maintained a satisfactory regulatory record with IRDA; 3. The insurance company should have maintained the prescribed regulatory solvency margin as at the end of the preceding six quarters; 4. The insurance company should have been fully compliant with the disclosures requirements as mandated in the IRDA Circular No. IRDA/F&I/CIR/F&A/012/01/2010 dated 28th January, 2010; 5. The insurance company should have been fully compliant with the Corporate governance Guidelines issued by IRDA; 6. The insurance company s record of Policyholder Protection and the pendency of the policyholder complaints should be satisfactory; and 7. The insurance company should have embedded value of at least twice the paid up equity capital. IRDA has asked for suggestions or comments on draft IPO guidelines for Life Insurance Companies by June 30, 2011.