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— A. Roy Chowdhury.

Mr J. Hari Narayan, Chairman, IRDA, flanked by Mr M. Ramadoss (left), Chairman and Managing Director, Oriental Insurance Co, and Mr U.S. Roy, Managing Director and CEO, SBI Life Insurance, at the ‘Insurance Summit 2009’ organised by the Indian Chamber of Commerce in Kolkata on Wednesday.

Our Bureau

Kolkata, June 10 The Insurance Regulatory and Development Authority (IRDA) will come up with a national standard for valuation of insurance companies in two months time, according to its Chairman, Mr J. Hari Narayan.

The initiative was aimed at increasing the level of disclosures by insurance companies, he told presspersons on the sidelines of an insurance summit, organised by the Indian Chamber of Commerce here on Wednesday. The regulator was also in talks with the Securities and Exchange Board of India to implement more disclosure norms in the insurance sector in order to device a comprehensive roadmap for launching IPOs by insurance companies, he added.

In the actuarial statement, he pointed out, the insurers would need to disclose to the regulator the embedded value of the company in accordance with the proposed standard, with effect from March 31, 2010 (for 2009-10). Currently, most insurance companies follow the standards prevalent in the home countries of joint venture partners, he said.

Embedded value is the basis for determining the long-term earnings of a company. For insurance companies, it is the valuation of future premiums for present policies.

“IRDA has commissioned a study, to be conducted by the Institute of Actuaries of India, for preparing a guidance note in order to implement the standard,” Mr Hari Narayan said, adding that the report, which is almost ready, would be placed with the Life Insurance Council next month for suggestions.

The standardisation in valuation would also facilitate comparison across different insurance companies, he said. IRDA was also working on formulating guidelines for mergers and acquisitions, he added.

“It will not be possible for insurance companies to launch IPOs unless the disclosure level is improved,” Mr Hari Narayan said pointing out the present level of disclosure left much to be desired and did not even match that of Malaysia, Thailand and Hong Kong. The regulator had earlier introduced disclosure guidelines with regard to claim settlement ratio.

For launching an IPO, however, an insurance company needs to operate for at least 10 years or within a period notified by the Centre. According to SEBI guidelines, a company also needs to register three consecutive years of profit in order to list itself, a condition not met by most insurance companies, which are yet to break even.

Mr U.S. Roy, Managing Director and CEO of SBI Life Insurance, said its decision to launch an IPO would mainly depend upon the forthcoming Insurance Bill.

Mr Hari Narayan said the regulator was also keen on putting a cap on managerial expense for insurance companies adding that a cap on CEO remuneration of Rs 1.5 crore, chargeable from the policyholders’ fund, was already in place. IRDA would also invest Rs 20-25 crore for launching a customer awareness programme in line with the ‘Jago Grahak Jago’ campaign by the Centre, he added.

More Stories on : Insurance | Regulatory Bodies & Rulings | Standards & Benchmarks | IPOs

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