Sep 29 2008
Insurance in India in fine shape - LIC to shed excess stake
In regard to the ongoing financial crisis hitting the US market the Indian insurance authority IRDA or the Insurance Regulation and Development Authority have ruled out the need of further tightening the regulations for insurance firms here in India by citing that the Indian insurance counterparts are well capitalized and are therefore not likely to be affected by the global financial turmoil. I suspect that the call for tightening of regulations would have translated into a revision of solvency margins for these insurance firms.
IRDA however looks staunch on bringing out a plan to put in place risk based solvency norms by the end of this ongoing fiscal. In further announcement IRDA has reported to have shown its intention of allowing LIC with a reasonable amount of time for it to pare down with its equity stake that it enjoys in several companies to the limit of 10% which is the level of allowed investment cap specified by IRDA. This decision very well indicates to me the cautious approach taken by the regulator so that LIC does not go in for a forced sale which subsequently would make it to offload its investments in the market in return for major losses in the form of low returns.
LIC is a major investor in some of India’s biggest equities and is in possession of a stake exceeding more than 10% in some of India’s major blue chip companies which include the likes of ITC, Cipla, Maruti, MTNL, Ranbaxy, HPCL, Tata Motors etc. I consider the denial against changing the solvency margins to be based upon the fact that with no major company drawing external investment they are presently very well capitalized and working efficiently and smoothly within the present prescribed solvency margins. Taking concern on the fate of AIG in the US the regulators here in India have asked the company to present them with a business report in order to understand what the company is actually facing and how is their local Indian partner planning to proceed with changes in the structure of AIG taking place in the US.