Insurers will get options to invest in infra bonds

Changes in investment norms will ensure better returns for policyholders, says IRDA chief Hari Narayan.
J Hari Narayan, the new chairman of Insurance Regulatory and Development Authority (IRDA), takes charge at a challenging phase, when the government is keen on pushing a legislation to increase the Foreign Direct Investment (FDI) in the insurance sector. Given the impressive growth in the life industry, the stage is all set for the next phase of reforms. The non-life industry is also set for a take-off. In his first interview after taking over, Mr Narayan dwelt on a range of issues in the insurance sector and the road ahead.
Do you expect several new entrants in the sector when the cap on FDI in insurance is hiked from 26% to 49%?
A large number of private players are already operating life and general insurance sectors. Had the size of investment been an inhibiting factor, they would not have come in. I do not expect several new players to rush for joint venture tie-ups if the cap on FDI in insurance is raised. But existing players may increase their stake, which, in turn, will enhance FDI inflows. Capital has so far not been a major constraint for the insurance industry, given the way they have been expanding their business.
Some Indian promoters have restructured their joint ventures to expand their relative shareholding in the company. This is, perhaps, reflective of their relative strength. But insurers need capital to meet unexpected claims, expense over-runs and investment losses. And we do see some strain among Indian partners in raising capital whenever there is a call for greater shareholder funds. A hike in the FDI cap would help then. Also, comprehensive changes in the insurance legislation will give IRDA flexibility to respond to emerging market developments.
Promoters of private insurance companies were expected to dilute their shareholding through an initial public offering within 10 years of operations. Is this timeline being reviewed?
The dilution of equity stake would hinge on the final decision on the FDI cap. As the market matures, the insurance sector would also witness churning in the form of mergers and acquisitions (M&As). A realistic valuation of companies would be crucial. We need to do some homework on these issues and are looking at setting up an expert group.
Avdhoot Investment