Hyderabad:
After asking the insurers to be fiscally prudent to guard their sovency positions in the days of Covid-19 Pandemic and ongoing nationwide lockdown, the insurance regulator IRDA has asked the insurer not to pay any dividends to their promoters and shareholders in FY 2019-20 till further instruction.
“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 from profits pertaining to the financial year ending 31st March 2020, till further instructions. This position shall be reassessed by the IRDAI based on financial results of insurers for the quarter ending 30th September, 2020,'' said Pravin Kutumbe,member(Finance & Investment),IRDAI,on Friday.
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Also, the necessary relaxations on recognition of ‘approved investments’ under Regulation 3 (a) (4) and 3 (a) (5) of the IRDAI (Investment) Regulations, 2016, arising out of the above will be separately considered, said IRDAI.
Apart from the fact that it would be a big disappointment for the investors at large of the listed insurers, it is yet to be seen what will be impacts of the IRDA's instruction on “non-payment of dividend'' on the profit making public sector insurers like Life Insurance Corporation(LIC), GIC Re and New India Assurance(NIA),ECGC and Agriculture Insurance Company(AIC) as government depnds upon dividens paid by these insurers along with other public sector units,to manage its finances.
Analysts point out that the government under the present circumstamces, where it is spending heavily on economic revival packages to tackle the Covid-19 Pandemic situation,it's depedence on PSUs will be more and not less.
“Government has to wait till September 2020, when IRDA will review its decision on dividend payment,'' said a CMD of a PSU insurance company.
HDFC Life will be first among the lot among the listed insurers that will be announcing its results on Apr 27.
For the year 2018-19, LIC had paid Rs 2660.60 crore ( Rs 2421.82 crore in 2017-18) as dividend to shareholder i.e. Government of India.Seven private life insurers paid dividends during the financial year 2018-19.GIC Re had paid dividend of 1184 crore in 2018-19 as against Rs1002 crore in 2017-18. None of the four public sector general insurance companies,New India Assurance(NIA),United India Insurance(UII),National Insurance Company(NIC), and Oriental Insurance Comapny(OIC) had paid any dividend during the year 2018-19.
Earlier, as part of measures to prudently manage their financial resources, all insurers have been directed to align dividend pay-out for the FY 2019-20 so as to be in conformity with their strategiesto ensure that they have adequate capital and resources available with them to ensure protection of the interests of the policyholders.
IRDAI had asked the insurers to tighten their belts by rationalising the expenses of management, critically examine their capital availability and solvency margin as required in the current financial year 2020-21.
Emphasising on prudent management of financial resources by the domestic insurers in the days of Covid-19 pandemic and ongoing lockdown in the country, the board of insurers were advised to devise strategies to ensure that they have adequate capital and resources available with them,
` Due to the stress experienced by the economy, sufficiency of capital and liquidity position of the insurers may be adversely impacted and all the insurers need to guard against the same. Indian insurers need to prepare strategies and action plans for business continuity to ensure enhanced protection to the policyholders,Kutumbe had said.
With the spread of Covid-19 in the country and 21-day nationwide lockdown from 25 March 2020 to 14 April 2020 and further extension of lockdown by several State Governments, there is likely to be a significant impact across various sectors of the economy, said IRDAI.
The slowdown could be more protracted in dire scenarios in which the duration of COVID-19 extends longer. If the shutdown continues for three months with no offsetting factors, annual GDP growth could be between 4- 6 percentage points lower than it otherwise might have been”. The emerging scenario is likely to leave an impact on both liquidity, sufficiency and availability of capital, said IRDA..
During 2018-19,HDFC Life paid Rs 328.83 crore ( Rs 273.22 crore in 2017-18),ICICI Prudential paid/ Rs 703.43 crore (Rs 990.46 crore in 2017-18), Max Life paid Rs 397.19 crore ( Rs 285.90 crore in 2017-18), SBI Life paid Rs 200 crore ( Rs 200 crore in 2017-18), Shriram Life paid Rs 17.94 crore ( Rs 20.09 crore in 2017-18), Bajaj Allianz paid Rs 105.50 crore and SUD Life paid Rs 5.18 crore.
Private sector general insurers had paid dividend of Rs 618 crore and specialised insurers have paid dividend of 30 crore in 2018-19.