The Insurance Regulatory Development Authority has scrapped the embedded value requirement for listing of general insurance companies on stock exchanges in the final guidelines issued in the gazette.
Instead of the embedded-value method of valuation, general insurance companies will be required to make additional disclosures on risk factors specific to them, adequacy of premiums, reserves, asset-liability management, and current financial condition.
Embedded value, an actuarial practice used to value an insurance company, is the present value of the future profits expected from the business.
In the draft guidelines issued earlier, IRDA after consultations with SEBI, suggested that the embedded value should be double the share capital for listing of a general insurance company.
However, during discussions on the draft guidelines with regulator, the general insurers sought removal of this provision as general insurance is a transient business whereas life insurance policies are long-term contracts.
IRDA has said that only those companies, which have been in operation for 10 years, will be entitled to bring out an IPO. The approval granted by the authority would be valid only for a year, within which the company has to file the Draft Red Herring Prospectus with Securities and Exchange Board of India.
The criteria for approval for insurers will be their overall financial position, its regulatory record, the proposal of issue/ offer of capital, the capital structure post issue, history of compliance with regulatory requirements and the maintenance of solvency margin.