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C. Shivkumar

Bangalore , Jan. 5

THE International Finance Corporation (IFC), the private sector funding arm of the World Bank, has expressed interest in investing in the country's insurance sector.

IFC's Chief Investment Officer for South Asia, Ms Anitha George, said, "The main problem is with the FDI ceiling in the sector."

IFC's investments are treated as foreign direct investments. Foreign investment in the isector is currently capped at 26 per cent.IFC is interested in investing in both the life and non-life sectors, Ms George told Business Line.

IFC has already made substantial equity investments in the manufacturing and financial sectors. It has so far invested about $413 millionin some of the private sector banks and non-bank finance companies. However, in other parts of the world, IFC already has substantial investments in the insurance sector.Ms George said, "We have spoken to the government and will wait for a liberalisation in the ceiling before taking a call."

However, it is not IFC alone that has been pushing for relaxing the FDI ceiling in the insurance sector. Almost all foreign and domestic joint venture partners have sought a revision in the ceiling to upwards of 49 per cent. One of the major factors that have prompted insurance companies for seeking a revision in the cap was the need for additional capitalisationin their respective joint ventures.

Industry sources said that additional capitalisation is required to sustain the growth rate. Premium collections of the non-life insurance sector were up 15.5 per cent on year-on-year basis, with the private sector alone growing by 55 per cent, according to figures released by the Insurance Regulatory and Development Authority (IRDA).

In the life sector, the premium growth of the private sector was 30 per cent though the entire industry had grown by close to 170 per cent.

Premium accretions automatically lead to an increase in the insurable liabilities with a direct impact on the solvency margins prescribed by the IRDA.

The private sector, the sources said, has been finding it difficult to capitalise without a relaxation in the ceiling.

Moreover, additional capital is also required to offset the depreciation of investments, especially government securities. Insurers have been hit by the sharp rise in the yields by close to 100 basis points over the last one-year. This has also impacted the solvency margin, they added.

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