Insurance companies may need exemption for prompt listing

Insurance companies may need exemptions either from the securities regulator's rule or from the primary regulations to be promptly listed on the stock market, say experts.

This comes after Finance Minister AHM Mustafa Kamal said on Sunday that all insurance companies in the country would have to be listed on the stock exchange by the end of this year.

He threatened to cancel licences of the companies that would fail to comply with the directive.

Analysts and experts think most of the new generation companies can manage a listing approval with their current earnings data.

But their current volume of capital is not sufficient, and that will bar them from applying for the Initial Public Offering (IPO) soon.

In that case, for prompt listing, the companies may need that exemption.

High paid-up capital requirement

According to the amended public issue rules formulated by the Bangladesh Securities and Exchange Commission, a company can apply for an IPO under the fixed price method if it posted a net profit after tax in the immediate past year, and has no accumulated loss.

A company must apply to accumulate at least Tk30 crore in capital in order to comply with both requirements.

On the other hand, the Insurance Act requires insurance companies to go public by issuing primary shares, but the number should not exceed two-thirds of what the entrepreneurs hold.

An investment banker at a top merchant bank who has primary market expertise told The Business Standard that insurance companies under the amended public issue rules must increase their paid-up capital to at least Tk45 crore if they cannot avail any special exemption.

"Then they have to collect at least Tk30 crore from the stock market. To comply with both regulations, the post-IPO paid-up capital of insurance companies must not be less than Tk75 crore.

"If they intend to issue primary shares at a premium rate, the to-do list will be tougher because those IPOs need to be bigger in terms of size," the investment banker explained.

He said there is no non-listed insurance company that deserves IPO prices more than the face value of TK10 for each share, excluding MetLife.

"To list well-performing insurance companies on the stock market promptly, exemption from any of the regulations may be necessary," he added.

Financial health of insurance companies

According to experts, insurance companies, being cash-rich, are having a good time while the rest of the economy is very cash-hungry now.

Experts have been saying for a long time that Bangladesh is one of the most untapped insurance markets in terms of penetration rate. Awareness and a strong culture of insurance service behind economic activities can help the industry thrive.

Various steps are being taken nowadays to address these issues.

Several local equity research teams have done analysis on the insurance sector's financial performance. The Business Standard has obtained the findings of a team.

An analysis of the compiled data suggests almost all the listed insurance companies, both in life and non-life sectors, are making profits and paying dividends to their shareholders at the year end.

But a bunch of non-listed companies in both sectors are still struggling as a few of them are playing their due role to make the pie bigger by creating new market.

Besides, the majority of them are also struggling to acquire their sufficient share in the existing market.

Most of them are failing to limit their operational expenses within the regulatory threshold against their business volume and that is a concern for all, including the insurance regulator Insurance Development and Regulatory Authority.

Non-life companies must thank the state-owned insurer and reinsurer Sadharan Bima Corporation, which is sharing its income from protected business to underwrite government properties with private sector insurers.

That annual income helps a number of weak non-life insurers avert losses at the year end, according to observers.

There is a strong call for more income from companies' own core businesses that offers investors a long-term fortune, said stock analysts.

Sultan-Ul Abedin Molla, a former member of the insurance regulator, said there are non-listed insurance companies both from new and old generation, and old ones are in a more vulnerable position financially.

"They owe a huge penalty to the Insurance Development and Regulatory Authority because they did not list on the market in time. Some new generation companies are doing good business, and the stock market will benefit if they are listed," he added.