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India’s insurance IPO push: best to be prudent

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By Jonathan Breen
16 Aug 2016

The Insurance Regulatory and Development Authority of India (IRDA) is looking to make IPOs mandatory for all insurance companies in India that fit the criteria. For some firms, this could be the kick they need to get their act together. But the regulator should be careful about forcing the hands of insurance firms that are not ready for a listing.


India’s insurance industry has been put under the spotlight. The IRDA released a discussion paper at the end of last week, giving insurance companies a push to list within a period of three years. This applies to all general insurance companies that have been in operation for eight years and all life insurers that have been operating for 10 years.

IRDA’s suggestions have captured the attention of equity capital markets bankers, and for good reason. The market has long called for some of the insurance firms to list in a bid to increase their transparency.

Indian insurers have been sluggish about bringing themselves to the public market since the IRDA released guidelines for IPOs last year. HDFC Standard Life Insurance Co and ICICI Prudential Life Insurance Co are the only firms to have filed for IPO approvals and picked banks. But when an opportunity for a backdoor listing via Max Life Insurance opened up, HDFC jumped at that option. The others are yet announce when they might start the listing process.

Meanwhile, the last of the big four Indian insurers, SBI Life Insurance Co, is yet to make any headway with a listing. So far, there has only been vague mutterings of interest from the company.

Given the slow pace, it makes sense that the IRDA is eager for some action, especially when sentiment towards Indian equities is on a high. The country’s stock markets have been on a roll this year, with 47 IPOs priced so far compared with 36 listings during the same period last year, according to Dealogic data, with many companies taking advantage of a rally in the domestic indices.

IRDA’s plans are ambitious. Of the 55 insurance firms registered with it at the end of July, 32 have completed 10 years in operation. IRDA wants insurers to take up the listing process with their respective boards within three months after the new guidelines are issued, and file a roadmap for the IPO within 45 days from the date of approval from their boards.

But the insurers then need to implement the plan within the period approved by IRDA — with firms given a maximum of three years by which to list. And here is where the IRDA may face some challenges.

The three year number is prudent to some extent. A shorter deadline could cause a flood of listings from unprepared companies in a short span of time — potentially creating a demand/supply imbalance.

But the problem stems from the fact that the big four firms hold around half the market share of the Indian insurance sector. And the country’s other insurers are much smaller and therefore in investors’ blind spot.

Market watchers reckon these firms will need at least three years simply to prepare for a listing. And the time they might realistically need to grow in size to become profitable enough for an IPO is another matter altogether. This makes it only tougher for them to meet the three year timetable.

The deadline poses a challenge on another front too — the fact that no one can tell what state Indian markets will be that far down the line. Sentiment may be positive now but there’s no saying if the outlook will remain rosy a few years down the line.

The business of insurance is about weighing up risks and making a measured judgement. The IRDA would be prudent to take the same approach with its IPO scheme.


By Jonathan Breen
16 Aug 2016