Build your professional network on facebook via our app Go to app
 
 
 

Should Insurance Cos be allowed to raise equity?

Created by : Niranjan Meena, Actuary Manager, LIC  | 09 22 2009 12:06:03 +0000
Industry : InsuranceFunctional Area : Business Models(Strategy & Execution)
Keywords : insurance equity life insurance lic insurance companies tata aig icici prudential kotak bajaj allianz
Activity:  213 views;  last activity : 07 06 2010 20:18:09 +0000

There is a big debate going on between the government and Insurance cos are asking to consider insurance industry’s demand for them to  allow to raise equity from the public even before completing ten years of operations, and Economic times has covered this news really good, and thought of bringing this to the notice of insurance professionals on the platform. 

The current rules say promoters should not hold more than 26% equity in an Indian insurance company but, in cases where they begin operations with equity in excess of 26%, promoters can bring their stake down to the limit only after a period of ten years from the date of the commencement of business.

India needs insurance companies to expand rapidly to bring more people under cover, but this 10-year rule is creating an artificial scarcity of capital, in tandem with the 26% cap on foreign equity. Insurance requires periodic capital infusion in the early years because of expansion and initial business losses.

Any capital infusion at present has to be in the 74:26 ratio, with the Indian partner taking the bigger share. Most Indian promoters are finding it difficult to bring these extra funds to their ventures, while willing foreign partners are running into the FDI limit. Should Insurance cos be allowed to raise equity?

  
 Refer 102
Share
 
 
  Rate : 
 
 
Yes Vs No
6
 
 
 
 
2
5
2
Support   Support
Top Argument
2
0

I think yes the government should allow insurance companies to raise fresh equity and this would address both their capital needs and also begin the process of paring the promoter stake to 26%. The expanded equity base would also allow more FDI to flow to the venture even before the FDI limit is hiked to the proposed 49%, and  later one can see profits when they get the Numbers under them and with low penetration of insurance in India. i guess those numbers could be easily achieved. what do you say guys.
By Niranjan Meena, Actuary Manager, LIC  09 22 2009 12:06:03 +0000
 
Top Argument
1
0

I don' think the Insurance companies should be allowed to raise the equity by waiving off the earlier stipulations.

This is a long term business, and the public money should not be put at risk. Courtesy recession, the insurance companies have stopped mad expansion spree, and started focusing on profitability at every stage. In this situation, if they are allowed to tap public money, it is possible that they will go back to the agenda of fighting for market share.

If the promoters are not in a position to infuse capital, what will happen? Mergers & Acquisitions..... This is good for the industry, the consolidation happens.

I agree that insurance penetration is required, but it should be the right kind of penetration..... Let it be a slow & meaningful penetration rather than the false penetration!!!
By SHARATH CHANDAR REDDY, Business Development Manager - Insurance, I T C Ltd  09 23 2009 10:33:24 +0000
1
0

Earnings of an insurance company not primarily dependent on market returns. only policy holders need to worry about uncertainity in markets.

Wheather its a ULIP or traditional planse companies earns primarily only thru charges they recover from policy holders.
By vijayasaravanan , Partner, MS Contractors and Amway Business Owner  | 09 25 2009 01:55:16 +0000
0
0

      My opinion is that the government should consider insurance industry’s demand to raise equity from the public even before completing ten years of operations. Because the raise of fresh equity would address both their capital needs and stakes. It also allow more FDI to flow to the venture even before the FDI limit is hiked.
By Prakash Khairnar, Sr. Associate, DSP Merrill Lynch  | 09 24 2009 13:04:29 +0000
0
0

I agree with Niranjan Meena
By vijayasaravanan , Partner, MS Contractors and Amway Business Owner  | 09 23 2009 13:11:09 +0000
0
0

They should be allowed to raise more capital. Many of the insurance companies are yet to break even and expense ratios of many are worrisome. With well planned and executed expansion, they can benefit from economies of scale as there is huge potential. Also this would attract more foreign capital inflows.


By Padmanabhan R, Articled / Audit assistant, Finance student  | 09 22 2009 16:48:54 +0000
0
1

Raising equity through public issue sounds good and it also helps the capital oriented sectors like Insurance. But the fact is to establish and to see the returns on capital which is a long distance dream.And th emain source of income for insurance is Investment. And as everyone knows, there are unpredictable situation. Have you guys heard of insurance sale ? For eg: The life insurance taken can be sold out to someone else.. When i got in to the industry , it was a news for me.. And this s growing industry now in the western world... So to make it short , public issue for insurance industry is highly risky.. Let me know your thoughts guys.........
By sowmya , Chartered Accountant/CPA, Viteos Capital Market Services  | 09 25 2009 01:30:44 +0000
Argue for "Yes"
Argue for "No"
 Found the debate " Should Insurance Cos be allowed to raise equity? "  interesting ?  Suggest to your connections and communities  
Leading recruitment Firm, Permanent Staffing, Temporary Staffing, Executive Search & Selection, and RPO
TSYS Consultant, Teamware Solutions
Openings for Graduate Freshers For Junior HR Executives., Teamware Solutions, Bangalore
Viewers also viewed
Yesterday, the government approved a bill to allow foreign education providers set up campuses...
 
669 referals 66 arguments, 4942 views
It’s true that practice makes the man perfect. It was my stint with the leading life insurance...
 
0 referals 22 comments, 4285 views
The Chartered Accountants have engaged themselves in the audit of Insurance Companies since...
 
29 referals 6 comments, 761 views
more...  
 
Sponsored Jobs
More From Author
Both these instruments are designed to serve different purposes and are not comparable. A unit-linked plan from an insurance company is an insurance policy designed to pay a lump sum on maturity or on death if earlier. Premium paid under these plans is...
With years, banks are also adding services to their customers. The Indian banking industry is passing through a phase of customers market. The customers have more choices in choosing their banks. A competition has been established within the...
To obtain a duplicate copy of the insurance contract, you need to intimate your insurance agent or the life insurer’s call centre. You will be required to submit an indemnity bond on a stamp paper (the stamp duty will depend on the state you reside...
more...  
  • Popular Knowledge
  •  
  •  
  • Popular Jobs
  •