Life Insurers Want 4-Yr Grace For Carrying Forward Losses

NEW DELHI: The private life insurance industry has sought an additional four-year grace period to carry forward its losses since most insurers have failed to break even, even after eight years of operations. In its pre-Budget recommendations to the finance ministry, the industry has also sought a separate limit for long-term savings. “Typically, life insurance companies take longer to break even since it is a long-term gestation business.

At present, losses can be carried forward only up to eight years. In our meeting with the finance ministry, we have submitted that the period for carry forward of losses should be increased to 12 years. Some companies continue to make losses even after a decade of operations,” said Max New York Life Insurance MD & CEO Gary Bennett.

“There are substantial expense overruns in the initial years. This can lead to a deficit or reduce the surplus in the life fund. Companies should be allowed to carry forward tax losses and set (them) off against future taxable surpluses,” an analyst said. It will lead to a reduction in the tax liability over the years, as a result of which the capital requirement for the company reduces, he added.

Also, current provisions mandate that insurance companies must list within 10 years of operations. Under Section 6AA of the Insurance Act, 1938, Indian promoters have to scale down their stake to 26% within 10 years of operations. This amendment is being considered by the group of ministers (GoM) set up to examine the comprehensive insurance legislation.

Insurance companies, which are into their eighth year of operations, might not be ready to go public yet, since they are yet to break even. According to Sebi rules, a company may list only after three years of registering profits. Insurance companies, however, are already being valued at skyrocketing levels. For instance, ICICI Financial Services — the proposed holding company — has been valued at more than $10 billion post-issue.

Over 75% of the value of this holding company is estimated to be on account of ICICI Prudential Life, in which ICICI Financial Services will hold 74%, thereby placing an implied value of around $10 billion on the life business.

On measures to encourage long-term savings, Aviva India MD Bert Paterson said, “We recommend a separate limit for deductions under Section 80C for long-term savings instruments such as life insurance. Most people are investing only Rs 1 lakh at present in both long-term and short-term saving instruments. Currently, the Rs 1 lakh deduction under Section 80C also includes short-term saving instruments such as some mutual funds and fixed deposits. Life insurance and pensions are the only segments of financial services that address the needs of individuals in the long term. Hence, the government should look at encouraging people to save for the long term by providing a separate limit for long-term savings.”