Mixed reactions to Irdai asking insurers to refrain from paying dividend

Some experts cited Reserve Bank of India's (RBI) advice to the banks earlier and supported the Insurance Regulatory and Development Authority of India's (Irdai) move to conserve capital, while others cited the varying nature of the two businesses and said that the insurance regulator should focus on underwriting losses incurred by general insurers rather than following the central bank.

In a circular to all the insurers, Irdai on Friday said: "In view of the emerging market conditions, and to conserve capital with the insurance companies in the interests of the policyholders and of the economy at large, insurers are urged to take a conscious call to refrain from dividend pay-outs pertaining from profits pertaining to the financial year ending 31st March 2020, till further instructions."

The Irdai said it will reassess the position based on the financial results of the insurers for the quarter ending September 30, 2020.

"The Irdai need not follow the RBI. It should focus on the ways and means of helping general insurers book underwriting profit," an insurance expert, not wanting to be named, told IANS.

"Like RBI, the banking regulator, Irdai is asking insurers to conserve capital. The insurance regulator as a matter of prudent policy has also said that it would review its decision based on the results for the quarter ending September 30, 2020," Saurabh Bhalerao, Associate Director (Research), Care Ratings, told IANS.

"This is an advisory at best and an extraordinary one at that. But we are in extraordinary circumstances and the regulator wants to pre-empt any possible criticism at a later date that it did not even forewarn the insurers," practicing chartered accountant P.S. Prabhakar told IANS.

To the query that should Irdai not permit insurers to pay dividend on a case-to-case basis than issuing an omnibus director, Prabhakar replied: "Yes. Especially in private companies which satisfy all provisioning and solvency margin norms as per the regulations. But should one fault Irdai for just trying to be an over concerned regulator?"

According to Bhalerao, both the regulators -- RBI and Irdai -- will review their direction after September quarter results. May be then both would allow the regulated entities to declare dividends.

Experts were of the view that the decision will affect the shareholders of listed insurance companies as they are unsure of the dividend and share market prices may also not perk up as the premium growth during the first quarter of the current fiscal will be a washout, more so for general insurers.

Industry experts said the dividend pay-out restriction also applies to the Life Insurance Corporation of India. A cash strapped government would like to get dividend from the LIC.

"The regulators have hit the pause button only, and not the delete button," an expert told IANS.

Looking at FY21, Bhalerao said the first quarter for life and non-life insurers will be bad as whatever business that are done are happening only through online channels.

"The general insurers will be affected as automobile sales are down and their focus will be on health insurance. They may also now focus on pushing the ‘Loss of Profit' policies with the corporates," Bhalerao said.

The life insurers will be selling more term assurance plans and there will be increased awareness about insurance protection now, thanks to the coronavirus pandemic, he added.