The Hindu Business Line : LIC to get reasonable time to shed excess stake

New Delhi, Sept. 26 The Insurance Regulatory and Development Authority (IRDA) on Friday said that it intends to give “reasonable time” to Life Insurance Corporation (LIC) to pare down equity stake in various companies to 10 per cent, the investment cap specified by the regulator in the investment guidelines released last month.

“We don’t want to have a forced sale by LIC so that it offloads investments in the market and gets lower returns. At the same time, we want to give reasonable time to LIC so that it smoothens out the whole process and the transition is smooth,” Mr R. Kannan, IRDA Member, told reporters on the sidelines of BIMTECH Insurance

Summit 2008 here on Friday. He, however, did not want to be drawn into discussion on what a “reasonable time” would be.

Instead, Mr Kannan noted that IRDA was in correspondence with LIC on this issue and definitely due consideration would be given for the investments. “We do not want LIC to incur any loss on its investments,” he added.

LIC is a major investor in Indian equities and has more than 10 per cent stake in a large number of blue chip companies, including ITC, Corporation Bank, Cipla, Maruti Suzuki, MTNL, Tata Motors, HPCL, Ranbaxy Laboratories, and Tata Steel.

Meanwhile, Mr Kannan said that a clear roadmap on risk-based capital (RBC) for insurance industry would be drawn up by March 2009. The IRDA member noted that at least one or two years would be required to prepare for moving to an RBC.

Solvency margins

He also said that there was no need to take a re-look at the solvency margins, stating that the existing norms were adequate. “Solvency margins prescribed today is very much adequate. There is no need to take a re-look at the solvency margins at this stage. All Indian companies are well capitalised. There is no need for any fear at all. All companies have more than adequate solvency margin. I do not see any issue. No company has external investment. There is no cause for worry,” he said, when asked about the US financial turmoil and whether solvency margins need to be reviewed at this stage.

On Tata AIG insurance businesses, Mr Kannan said that IRDA has asked the company to submit a business report. “In light of change in nomenclature in AIG, as a regulator we want to know what they are facing. Since there is a change in structure in AIG, what is their local partner going to do. That is our concern”, he said.