IPOs from insurance companies soon!

IPOs from insurance companies soon!

IPOs from insurance companies soon!

Investors' in the current fiscal year may find Initial Public Offerings (IPOs) from leading private life insurance companies such as SBI Life Insurance, HDFC Standard Life, Reliance Life Insurance and ICICI Prudential Life Insurance. The insurance regulator - IRDA (Insurance Regulatory and Development Authority), and the capital market regulator "SEBI (Securities and Exchange Board of India) have resumed the process of listing insurance companies and necessary guidelines are under preparation.

In order to prepare the final draft on the valuation method to be adopted, the insurance regulator has already restarted consultations with SEBI. Moreover, to provide transparency to investors', disclosure norms for life insurance companies intending to list, are also in the final stage of finalisation and are likely to be released by the end of July 2010.

As per the existing guidelines, for an insurance company to list on the stock exchange, it is required to be operational for at least 10 years before listing. It was only last year that the Government mooted a proposal to allow insurance companies to tap the equity markets after operating for 5 years. Also, interestingly no private life insurance company in India has completed 10 years of operations and its noteworthy that of 23 life insurance companies in India, only 3 have managed to break even.

In our opinion, introduction of the IPO route for insurance companies, is a path for reducing and off-loading their promoter holdings. From an investment perspective, subscription to such IPOs would be a risky investment proposition since profit margins of most private life insurance companies may come under pressure on account of the changed structure (with effect from September 1, 2010) of Unit-Linked Insurance Plans (ULIPs), making them attractive for investors, but uncomfortable for life insurance companies.

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