The Insurance Regulatory and Development Authority (IRDA) is likely to scrap the embedded value requirement for listing of general insurance companies on stock exchanges.
“Embedded value does not apply to us. So, general insurance companies have approached the regulator and they are reviewing it,” said G. Srinivasan, CMD, New India Assurance.
Instead of the embedded-value method of valuation, general insurance companies will be required to make additional disclosures on adequacy of premiums, reserves, asset-liability management, and current financial condition, said industry experts.
Also, the regulator has said that it will look into the financial position, capital structure and regulatory record of insurers before permitting them to come up with share sale offer.
Embedded value, an actuarial practice used to value an insurance company, is the present value of the future profits expected from the business.
The draft IPO guidelines for insurers, released by IRDA after consultations with SEBI in September 2012, suggest 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 asked the regulator to remove this provision.
“It is difficult to value companies on the embedded value parameter as general insurance is a transient business whereas life insurance policies are long-term contracts, where the policyholder pays premiums regularly, which can help determine the embedded value of the company,” said Joydeep Roy, CEO and whole-time Director, L&T General Insurance.
deepa.nair@thehindu.co.in