After about a two-year wait, the Insurance Regulatory and Development Authority (Irda) has issued draft guidelines on initial public offering for life insurance companies. The development is welcome. To some extent, the wait was necessary as the global financial market and especially the insurance sector was in turmoil, and there was a reason for Indian industry to absorb some lessons. Perhaps the regulator was also influenced to delay the guidelines in anticipation of the government bill to raise the limit of FDI in the sector from the current 26%. The legislation would certainly have given more clarity on the prospects of the sector. While the biggest point of discussion will be about the number of years the regulator has mandated (10, instead of five), maybe a certain degree of circumspection was inevitable. Surprisingly, it seems that the government and the regulator are not on the same page on this. In April 2010, the finance ministry had informed Parliament it was in talks with Irda to reduce the eligibility criteria to five years. That has not happened and as most of the insurance companies are of 4-7 years vintage, the pressure to reduce the number of years will persist. The rest of the rules laid down are pretty much par for the course, like those involving solvency margins and disclosure requirements.
The surprise in the pack is the Irda bid to almost modify the Sebi (Issue of Capital and Disclosure Requirements) Regulations 2009. This particular Sebi regulation is meant to address all reasonable, possible, investor information needs about a company. But Irda thinks that is not enough and proceeds to append a set of chapters where companies will have to write about issues like what the government plans are on FDI in the sector and a report on the global insurance industry. It remains to be seen on what basis a company can make such forward-looking statements in a prospectus. Despite all this overload, the regulator makes it clear that it should not be held responsible as having endorsed the issue.
