Insurance regulator Insurance Regulatory and Development Authority of India (IRDAI) is scrutinising if private equities (PEs) will make good promoters in insurance companies, a top official said.
"In insurance companies, we look at it in two different ways. Investors and promoters. Anybody can invest in the company, for promoter, we are studying as to know what is the feasibility, and if at all somebody is coming what are the conditions that need to be put in place," T S Vijayan, chairman Irdai, told reporters on the sidelines of an Assocham event here today.
"We have set up a team for the purpose and we are legally examining it and we will take a decision on the issue in a month or so. We will come out with a decision in a month's time on allowing private equity (PE) firms to buy stake in insurance companies," he added.
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However, the Irdai chairman said no decision has been taken on short-term money coming into insurance sector.
"This is one question we are debating," Vijayan said.
Of late, Canadian billionaire Prem Watsa's Fairfax Financial Holdings had sold 12.18 per cent of its stake in general insurance company, ICICI Lombard to private equity firms like Warburg Pincus, Clermont Group and IIFL Special Opportunities Fund.
A private sector life insurer, SBI Life has also got investments by PEs.
Some of the minority shareholders in SBI Life include Value Life, an affiliate of KKR Asian Fund and MacRitchie Investments, a wholly-owned subsidiary of Temasek Holdings, each of which hold 1.95 per cent in the company.
PEs have also invested in the life insurers like HDFC Life and Max Life.
Talking about a host of insurers going for initial public offering (IPO) and the valuation they are getting, the Irdai chairman said the regulator is only looking at the solvency margin.
He made it clear that if the shareholder is paying for a share, it should not be any concern for the regulator.
According to Vijayan, what we have done is that, insurers are investing huge amount of money in this market, we thought we would bring-in stewardship code on how to do it, how are they investing and how are they responsible for the investments.
He further said that there are more than 50 companies and it will be good if all the companies are coming to the market. He however said that Irdai is not forcing them to come out with an IPO.
It needs building up of reserves, reinsurance support and evaluation of the extent of damages, all these things are required. It is a good starting point, it is giving good results and going forward, I am sure it will be catching up again, he said.
The Irdai chairman also highlighted the need to talk about performance rating of the insurance company.
"How much claims they are settling, how soon they are settling, what is their claims ratio, if it is adequate, rather than price, whether the value of insurance can be compared by the customer before going for a policy," he said.
Irdai is also looking at risk based supervision.
"With the cooperation of insurance companies, we should be able to monitor their result on a very frequent basis and go on-site inspection only when it is required and try to control that," he said.
He said with International Financial Reporting Standard (IFRS 17) coming in 2020, these types of changes in accounting standards and the necessity for insurers to raise capital to support this growth are some of the changes that the industry needs to go through.
On impact of public sector banks merger on their insurance joint venture, Vijayan said, "So far we have not allowed one entity to promote more than one insurance company but if parents are getting merged, that will be a challenge, we have to see at that time."
He also informed that Irdai has though just formed a committee for risk based capital model but gave no deadline for its introduction.
"At Irdai, we have things like 150 per cent of solvency margin irrespective of numbers and we are trying to move towards risk-based capital model. We have started forming a committee and have started discussion too, though it will take time as it is not an overnight type of thing," he said.
"The knowledge papers are prepared, committee is prepared and it will take some time to evaluate that because we have factor based capital so far and frequent changes are not good in this," he said, adding "we are evaluating, studying, taking opinions from industry and professionals and going forward, there is no time frame as of today.
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