Sebi panel moots IPO disclosure norms for insurers

Cites specific risks that need to be outlined by the insurance firms

Clearing the decks for Irda to come out with IPO guidelines for general insurers, a Sebi appointed panel has suggested outlining risk factors in the offer document, including return from their investments.

“The insurance industry is different from other industries and has risks which are unique to it,” the panel said, adding that specific risk areas need to be disclosed in the offer document. Sebi Committee on Disclosures & Accounting Standards, recommended that general insurance companies proposing to come out with public offer should disclose in offer document the “claims arising out of catastrophic losses, which could materially and adversely impact the profitability or cash flow of the insurance companies.”

The report of the panel, having representatives of both Sebi and Irda, will now be used by insurance regulator Irda to finalise the guidelines for general insurance companies to come out with initial public offer (IPO).

The offer document, it suggested, would outline industry specific risk factors like interest rate risk, liquidity risk, catastrophic risk, re-insurance risk, regulatory risk and market growth risk.

Impact of default

Insurance Regulatory & Development Authority (Irda) had last year issued the IPO norms for life insurance companies. Also they need to inform regulatory restrictions on investments and the impact of any possible default any re-insurers which could materially affect the financial condition and results of their operations. The meeting of the panel held in January this year has suggested that the insurer should come out with overview of the entire industry and a specific format as prescribed by the Irda.

“Considering the fact that no insurance company in India has come out with an issue so far, it is felt necessary that the investors get a broad overview of the insurance industry,” it said.

Broad parameters under which such disclosure would be made by insurance industry has been suggested, it added. Insurance companies have to disclose financial information at regular interval to Irda.

The panel has also given its suggestions with regard to advertisements, objects of issue, definition of Promoters and disclosure with regard to uniform financial denomination. The sub-group recommends that report of an independent actuary on the Economic Capital of the insurance company should be made a part of the offer document.

The contents and format of the reports and criteria for actuaries who are authorised to prepare such report may be prescribed by Irda, it said.