Tuesday, December 13, 2011

IRDA Regulations on Insurance IPOs

Earlier this month, the Insurance Regulatory and Development Authority (IRDA) issued norms for IPOs by life insurance companies. Referred to as the IRDA (Issuance of Capital by Life Insurance Companies) Regulations, 2011, they set out certain preconditions for life insurance IPOs and also specify additional disclosure requirements.
The following are some key points:
1. The regulations impose duality of regulation, whereby life insurance companies desirous of undertaking IPOs will have to comply with the requirements of both IRDA as well as SEBI.
2. IRDA’s role essentially consists of merit regulation, by which it will make a threshold determination whether a company is worthy of undertaking an IPO, i.e. whether it has satisfied the qualification requirements. On the other hand, SEBI’s role is primarily with respect disclosure regulation, i.e. whether the offering document contains all the necessary disclosures. Of course, with no precedent to follow in the industry, a new set of practices will have to evolve with respect to drafting of the specific disclosures relating to the insurance industry in India, including financial disclosures and risk factors. 
3. Although the IPO guidelines have been in the making for some time, their pronouncement at the current juncture raises certain questions, as evident in this report in the Indian Express. With only a handful of life insurance companies qualifying for IPOs (as there is a 10-year operational requirement), it is unclear whether there will be an immediate spate of primary market activity in the sector.

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