India: Listing of Indian insurance companies: move to be "IPO ready"

Last Updated: 24 October 2017
Article by Celia Jenkins

Article by Celia Jenkins and Shubhangi Pathak

The last few years have seen several Indian insurance companies introducing public offers with the objective of being listed on Indian stock exchanges. Recent press reports indicate that there may be several more in the pipeline in the next couple of years.

In this regard it is interesting to note that §6AA of the Insurance Act 1938 (Insurance Act) initially provided for compulsory divestment of share capital by the promoters of an insurance company after a period of ten years from the date of commencement of the insurance business or any other period specified by the Central Government. One of the manners in which such divestment could have been implemented is by way of a public offer. However, this provision was deleted pursuant to the amendments introduced by the Insurance Laws (Amendment) Act 2015.

Post the 2015 amendment, the IRDAI issued IRDAI (Issuance of Capital by Indian Insurance Companies transacting Life Insurance Business) Regulations 2015 (Life Insurance Listing Regulations) and IRDAI (Issuance of Capital by Indian Insurance Companies transacting other than Life Insurance Business) Regulations 2015 (Non-life Listing Regulations) which provided for the procedure to be followed for listing of both life and non-life insurance companies. It is pertinent to note that these regulations issued by the IRDAI have to be read together with the SEBI (Issue of Capital and Disclosure Requirements) 2009 (ICDR Regulations).

Thus far, no similar guidance has been issued for any insurance intermediaries that exclusively carry out distribution of insurance. In the absence of specific guidance, these entities will continue to be governed by SEBI norms for public offerings.

The Listing Regulations:

The Life Insurance Listing Regulations and the Non-life Listing Regulations do not provide for compulsory listing by any Life or Non-life Indian insurance company. In addition, various press reports suggest that Indian insurance companies will not be obligated to list on stock exchanges and this decision will be left with the Board and management of these companies.

Both the Life Insurance Listing Regulations and the Non-life Listing Regulations provide that prior written approval of the IRDAI is to be obtained before any Indian Life Insurance Company or any Non-life Insurance Company approaches the SEBI for public issue of shares and for any subsequent issue as well. Further, the Life Insurance Listing Regulations and the Non-life Listing Regulations provide the factors which will be considered by the IRDAI for grant of this approval. These factors inter alia include,

  • Applicant entity's overall financial position;
  • Period for which the applicant entity has been in business;
  • History of compliance with the regulatory requirements by the applicant entity;
  • Compliance with Corporate Governance Guidelines issued by the IRDAI;
  • Compliance with the prescribed regulatory solvency margin.

Being "IPO Ready":

With this background one of the key factors which is considered by the IRDAI is history of compliance with regulatory requirements by the applicant entity. Further, any gaps in regulatory compliance will also need to be disclosed at the time of preparation of the Draft Red Herring Prospects (DRHP) in accordance with the ICDR Regulations, which will in turn form part of the "Risk Factors" set out in the DRHP.

In view of the highly regulated nature of the Indian insurance sector compliance requirements are not only wide spread in nature, but are also stringent. A few illustrations of compliance requirements applicable to Indian insurance companies include: 

  • Maintaining the requisite solvency margin;
  • Compliance with social and rural sector obligations;
  • Undertaking investments only as per the specified regulations;
  • Compliance with various regulations regarding manner of solicitation and procurement of insurance business;
  • Limitations on payment which may be made to insurance intermediaries
  • Requirement to obtain prior approvals from the IRDAI upon occurrence of specific events such as appointment of Key Management Personnel and Directors on their Board, change in place of business and change in shareholding pattern;
  • Requirement to file periodic returns and notifications with the IRDAI on various aspects.

In addition to this, compliance with other norms which apply to all companies such as the compliance requirements set out under the Companies Act 2013 also needs to be maintained.

Given the vast nature of regulatory compliance requirements, Indian insurance companies may find it challenging to prepare for a public issue once the Board and management of such companies takes the decision to list the company on stock exchanges. One manner in which such challenges can be addressed is a prior review of the company being "IPO ready" in advance of the decision for listing being taken. Ideally this phase may commence up to 1 to 2 years prior to the time when the decision for listing could be taken and would entail conducting an audit on the various compliance levels and business operations of the company to identify the gaps and non-compliance issues, if any. This will provide adequate time to the legal and compliance teams to then propose the key issues which need to be addressed and the changes which need to be introduced in the business practices to ensure optimum level of compliance by the time that the company decides to proceed with listing.

In this regard IRDAI has already provided in the "Guidelines for Corporate Governance for insurers in India" of 18th May 2016 that the insurance companies, even if unlisted, shall initiate to take necessary steps to address the extant 'gaps' that are so identified, to facilitate the smooth transition at the time of their eventual listing.

Concluding Remarks:

As the Indian insurance market develops and matures further, not only Indian insurance companies but also insurance intermediaries (who are also highly regulated by the IRDAI) will aim to introduce public issues and list on recognised stock exchanges in order to, inter alia, raise more funds from the public and provide liquidity to their existing shareholders. In this process, the time and efforts dedicated towards getting the companies "IPO ready" should be focused on ensuring optimum regulatory compliance and rectifying any non-compliance issues that are identified. This will go a long way in simplifying the process of listing and will also contribute towards improved market valuation of such Indian insurance companies and insurance intermediaries.

For further information on this topic please contact Tuli & Co 

Tel T +91 11 4593 4000, fax F +91 11 4593 4001 or email

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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