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India’s insurance regulator, the Insurance Regulatory and Development Authority (IRDA), is setting up a committee to look into developing benchmarks and disclosure standards for the valuation of insurance companies, according to reports in the Indian media.
IRDA chairman, Mr J Hari Naraya, believes that issues such as valuation of companies will take centre stage when the industry consolidates through mergers and acquisitions. Furthermore, several life insurance companies are planning to start going public next year.
The committee will consist of members of the Actuarial Society of India, chartered accountants, IRDA members and insurance company executives. In developing valuation benchmarks, it will look at factors like the surplus that an insurance company will generate over time, commission expenses and the initial expenses in creating and marketing a product, investment income, future mortality risk, claims ratio and lapse experience.
"It is important for the industry to follow some uniform method in estimating various components. This, in turn, will bring some closeness in the final outcome on valuation between various companies. Internationally, this issue has gained prominence with professional bodies setting valuation norms. Rating agencies even comment on these norms. In the days to come, the same will happen in India," IRDA member actuary R Kannan said.
Watson Wyatt managing director R Krishnamurthy said: "In the run up to the prospective initial public offerings, there is a need to agree on common disclosure practices, financial ratios and operational benchmarks so that there is a consensus among analysts to have a proper valuation for different companies."
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