Listing would improve transparency and also improve access to capital.
After a three-year hiatus, the insurance regulator is planning to nudge companies in the sector to be listed on the stock exchanges. Sources said that the regulator will engage in discussions with companies over the next few months to bring out necessary guidelines for the process.
While the proposal was first mooted in September 2015, it was later withdrawn after stiff opposition from insurance companies.
"Listing of insurance companies with 10-12 years of business experience will be beneficial and also help to bring additional capital to the sector," said an official. It is likely that it could start off with life insurers and then move to general insurers.
According to Insurance Regulatory and Development Authority of India (IRDAI) norms, a company has to be in the insurance business for 10 years to be eligible to list on the equity market. The regulator considers the financial performance, capital structure after offer and solvency margin, among other factors, to give its approval.
Sources also said that insurance companies with assets under management (AUMs) of above Rs 50,000 crore could be nudged to go to the IPO path.
Aditya Birla Sun Life, Max Life, SBI General and IDBI Federal Life are some of the companies who will be eligible to go for a listing.
The 2015 proposal
In the 2015, exposure draft 'Issuance of Capital by Indian Insurance Companies transacting Life Insurance Business', IRDAI had said that it had powers to push insurers to list. Such a company has to, within a period of one year from the date of such direction, comply with the direction issued.
"The authority might direct an Indian insurance company transacting in the life insurance business to go for a public issue if the circumstance so warrants," IRDAI had said in the exposure draft.
Following this, there were a series of discussions between the insurance companies and the regulator. Insurers expressed concerns about being forced to list. Hence, the proposal was sent to cold storage.
The regulator now plans to restart the process, and will have meetings over the next few weeks and then an exposure draft will be drafted by July.
Parity with banks
Banks are required to list within three years of starting operations. In insurance, however, the gestation period is longer. Insurers companies, on an average, take seven to eight years to break-even and achieve profitability.While the idea here is to ensure that financial institutions have similar rules when it comes to listing on the exchanges, insurers will be given a much longer period to go for an initial public offering.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.