‘Insurance merger and acquisition rules will protect policyholders’

December 19th, 2008 - 5:52 pm ICT by IANS  

Chennai, Dec 19 (IANS) The merger and acquisition (M&A) regulations to be drafted by the Indian insurance regulator will aim at protecting the interests of policyholders, particularly in the life insurance sector, a senior official has said.”Overseas, M&As happen when insurers break even. The same may happen in India and we at the IRDA (Insurance Regulatory and Development Authority) do not want to be taken by surprise with an M&A proposal,” R. Kannan, IRDA member (actuary), told IANS in an interview.

On deputation to the IRDA from the Reserve Bank of India (RBI), where he served as principal adviser and head of the department of research on monetary policy, Kannan has also served as actuary at SBI Life Insurance for several years.

After it was opened up, the domestic life insurance industry has seen only one M&A activity - Reliance Life acquiring AMP Sanmar Life in 2006.

The deal went smoothly as Reliance Life at that time was not transacting any life insurance business.

“The challenge will arise when M&As happen between two operating life insurers,” Kannan said.

He said the valuation of the insurers involved in M&As, calculation of market value, future status of policyholders of acquired and selling companies, proper utilisation of policyholders’ funds are some of the critical issues the proposed regulation would address.

“The policyholders of the selling company should know at what price the company was sold,” Kannan added.

“The regulations would ensure that the buying company does not force the policyholders of the selling company to discontinue their policies or switch over to a new policy with an eye on the latter’s policyholder fund,” he said.

He added that the regulator has asked life insurers to reveal the details of their recent investments.

“We have asked all life (insurance) companies to disclose investments made in September, October and November this year including those made under the unit linked insurance policies,” he said.

Asked about the effects of the financial crisis, he said the meltdown would take its toll on the insurance industry also.

However, he does not expect increase in policy lapse ratio - high or low value policies.

“We have checked with the companies and they are not expecting any increase in policy lapse rates because of the economic slowdown,” Kannan said.

On the reinsurance side, he said the IRDA was looking at the possibility of making life insurers increase their reinsurance exposure further so that more sophisticated products could be launched.

“Currently less than two percent of their total portfolio is reinsured by life insurers. Overseas strong life insurers reinsure a sizeable proportion of their portfolio,” he said.

Asked if the new foreign reinsurers would be allowed to transact business through branch offices or would have to start separate companies in India, Kannan said: “We are examining those issues also. We have to see WTO (World Trade Organisation) regulations on the subject matter before deciding.”

As a measure to ensure transparency in the insurance sector, he said insurers would be asked to publish their annual reports in newspapers.

“The IRDA will make rating of life insurers mandatory. This and peer pressure would make the insurers more transparent,” Kannan added.

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