S B Mathur, secretary general of Life Insurance Council, a former chairman of the

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Life Insurance Corporation of India (LIC), told Dipak Mondal and Sarbajeet K Sen that the proposed initial public offering (IPO) guidelines being worked out by the insurance and capital market regulators would ensure realistic projection of financials by companies when they approach investors. Excerpts:

There is a considerable delay in framing the insurance IPO guidelines, including valuation norms? What are the reasons?

IPO valuation is done on past profitability and one-two years’ futuristic projections. In the insurance industry, profits are not there. Only recently, a few companies have started showing profits. In absence of past performance and track record, insurance companies’ valuations could be largely based on future projections. The issue is whether the present earnings are sure to bring future revenue generation. The problem would arise if companies do not make the assumptions in a realistic manner.

So the crux of the issue is on future projections?

Yes. The basic valuations norms can’t be bypassed. We are trying to ensure that companies do not go haywire with their future projections. The idea is to make sure that the assumption and projections are correct.

Irda has recently allowed insurance companies to launch life and health combi products. Have insurers shown any interest towards launching such products?

It has only been a couple of months since these products were allowed. It would be premature to make any comment on whether or not companies are interested in launching such products. The problem lies in the fact that these products would compete with the individual products of the company. It is to be seen how effectively companies would spend energy and resources in marketing these products. The basic idea behind allowing the combi products is that since health insurance is a difficult product to sell, if offered with a life insurance scheme, people may be more eager on buying them than taking them separately. Combi products require tying up of life and non-life companies and they can be sold only through combi agents, that is, agents who sell products of both the life and non-life companies.

Recently, there has been a spate of Ulips in the market that claim to provide seven-year highest NAV to investors? How good are these products?

Going by pure insurance logic, one cannot argue much in favour of these guaranteed products. Irda norms require a higher capital requirement for guaranteed products. Why insurance companies are able to launch such products is because they have higher capital. Another issue is that whenever investors’ confidence is low, they remain wary of long-term policies. In December 2008-09, the first-year premium of life insurers dropped by 15-20 per cent. Then LIC launched Jeevan Aastha, a capital-guaranteed, single premium product that raised Rs 10,000 crore at a time when economy was in recession and markets were tanking. People invested in that product because they were protected against any capital loss but were also promised guaranteed 3-5 per cent return.

From investors’ perspective, how good are the single premium products?

Single premium products are good for those people who have uncertainty of income. However, for a salaried person, it is better to go for recurring premium products, which offer higher life cover for low monthly premiums.