Private insurers get QIB status

Securities Exchange Board of India (Sebi) has awarded private insurers - both life and non-life - the status of qualified institutional bidders (QIBs), bringing them on a par with financial institutions (FIs) in case of public issues.

The move is expected to fuel public issues and IPOs as private insurers are now expected to bid more aggressively.

Thus far, Life Insurance Corporation of India (LIC) and public sector general insurers enjoyed the QIB status.

Prior to the permission, private insurance companies had to apply as non-institutional bidders meaning they had to pay up the margin money upfront, losing out on the return on investment for the period.

In addition, reservation for non-institutional bidders is 25 per cent of the issue size against 50 per cent kept aside for QIBs.

The balance 25 per cent is kept for retail investors. Having been allowed QIB status, these companies will have to shell out the amount only after allotment - which will allow them to save on the cost of fund for the period when they apply and are allotted shares.

Managing director and chief executive officer, ICICI Prudential Life Insurance Co, Sikha Sharma said, "We have been allowed by the Sebi to apply as QIBs. We had requested Sebi to allow us to award us FI status some time back."

In case of over-subscription and proportionate share allotment there is a significant difference in the allotment pattern for FIs and other bidders.

Investment in equities for the private sector insurance companies however are guided by norms laid down by the Insurance Act and the Insurance Regulatory Development Authority (IRDA).

Even under the guidelines, these companies were barred from taking large exposure because of their non-FI status.

As of now, any insurance company can invest a maximum of 10 per cent of their investible surplus into equities in a year.

The bulk of investible surplus has to be invested in government securities and other rated papers as stipulated by the government.

Sharma also explained, that the present status for insurance companies were not allowing them to take exposures of economic size for the purpose of return on investment.

LIC, which is considered a FI, is also governed by the investment norm laid down by IRDA and the insurance Act, but the sheer size of premium income that it registers every year allows the insurance major to invest as much as Rs 4,000 crore to Rs 6,000 crore every year in the stock market.

Majority of this is invested towards the end of the fiscal. LIC along with public sector non-life insurance companies like General Insurance Company, New India Assurance, Oriental Insurance, United India Insurance, National Insurance all of which enjoy FI status invest large fund into the equity market.

The new generation insurance companies, owing to their size and their status are yet to take up large exposure volume wise in the secondary as well as primary markets.