Profitability, not vital for life insurers to float IPO

Deepa Nair Mumbai | Updated on March 12, 2018

‘Embedded value' of firms is key factor for public issue: IRDA

Profitability of the life insurance companies will not be the clinching criteria for allowing them to raise money through initial public offerings (IPO), said the Insurance Regulatory and Development Authority on Monday.

Instead, the embedded value of at least two times the paid-up equity capital of the company will be an important consideration.

Embedded Value is defined as the present value of the future profits expected from the insurance company from the present block of business. (Insurance policies are long term contracts and its obligation to policy holders are liabilities.)

The regulator said that its board has approved the final guidelines for initial public offering of life insurance companies.

“The board has approved the proposal. And after that we were in touch with the market regulator SEBI. We have received their comments and incorporated their recommendations in the final guidelines. And in a matter of few days it will get notified. I am sure as soon as the government notifies, the guidelines will be shortly out in the public domain.” said Mr R K Nair, Member (F&I), at the sidelines of a seminar organised by the Institute of Actuaries of India.

The regulator has also said that there has not been a substantial change between what was in the earlier draft and what has come in the final guidelines. Mr Nair also added that the profitability of life insurance companies will not be a consideration for listing.

The Institute of Actuaries of India is working on arriving at a methodology for calculating the embedded value (EV) of a life insurance companies to enable investors take an appropriate decision on the IPOs of life insurance companies.

Embedded value for a life insurance company has to be determined for the purpose of an IPO which will be conducted by an “independent actuary.”

“We are drafting actuarial practice standard; it has been drafted but it is still at a stage of process before it is adopted. After that we have to send it to IRDA. It should take at most 15 days,” said Mr Liaquat Khan, President of the the Institute of Actuaries of India


Published on October 17, 2011

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