New India Assurance may be first off the block for IPO in FY 17
The finance ministry is considering up to 10 per cent stake sale in at least one insurance company in 2016-17, beginning with the listing of New India Assurance in the primary market. The department of financial services is in the process of working out valuations for possible stake sale. The listing of other general insurance companies such as United India Insurance, National Insurance and The Oriental Insurance through initial public offerings (IPOs) is also being considered.
“To ensure transparency, we are looking at public listing of up to 10 per cent stake sale in general insurance companies in 2016-17. This is in line with the Budget announcement. The valuations are being worked out. It will also depend on market appetite,” said a government official.
The New India Assurance and National Insurance reported double-digit net profit growth in 2014-15, at 31.4 per cent and 17.9 per cent, respectively. New India Assurance reported a net profit of Rs 1,431 crore in FY15. The Oriental Insurance and United India Insurance posted a decline of 14.8 per cent and 43 per cent in net profit, respectively, in 2014-15 year-on-year.
No insurance company is currently listed on the stock market.
Insurance sector observers, however, said arriving at the right valuations for public-sector general insurance companies might be a tricky affair in view of huge underwriting losses and claims being substantially higher than premia collected in some key segments, like motor insurance.
G Srinivasan, chairman & managing director, New India Assurance, had said after the Budget announcement that the company was ready for disinvestment as its financials were healthy with the market share expanding in both domestic and international markets. He had told Business Standard at its Insurance Round Table, “While we have to go through the process, all four public sector insurers are in a position to list, though it could take six to nine months. New India Assurance will be one of the first companies to be listed.”
Finance Minister Arun Jaitley in his Budget speech on February 29 had said, “Public shareholding in the government-owned companies is a way to ensure higher transparency and accountability. To promote this objective, the general insurance companies owned by the government will be listed in the stock exchanges.”
The government needs resources as it is targeting to narrow the fiscal deficit to 3.5 per cent of the gross domestic product in 2016-17, from 3.9 per cent in 2015-16. Towards recapitalisation of state-run banks, the government has allocated Rs 25,000 crore for FY17, and has said that it will consider increasing allocation, if needed. Public sector banks are suffering from rising stressed assets and bad debts.
The government also needs resources to support greater capital spending to revive economic growth.
The disinvestment target for FY17 stands at Rs 56,500 crore, 19 per cent lower than the initial target of Rs 69,500 crore in FY16. As much as Rs 36,000 crore is estimated to come from minority stake sale and Rs 20,500 crore from strategic stake sale.
The Insurance Laws (Amendment) Act, 2015, allowed the four public sector general insurance companies to raise capital, enabling the government to lower stake to 51 per cent, from 100 per cent at present, for expansion of the business, and achieving enhanced competitiveness.
The subsidiaries of the General Insurance Corporation (GIC) of India were restructured as independent companies in 2000 and, at the same time, GIC was converted into a national reinsurer.
In 2012, the Insurance Regulatory and Development Authority of India issued IPO guidelines for general insurers, where it stated that the regulator would take into account the insurer’s financial position, its capital structure and regulatory record before permitting them to come out with the share sale.
THE STORY SO FAR
* 1973: The general insurance business was nationalised on January 1, 1973. One hundred and seven insurers were amalgamated into four companies – National Insurance, New India Assurance, Oriental Insurance and United India Insurance. The General Insurance Corporation (GIC) of India was incorporated in 1971 and commenced business on January 1, 1973, with the four above-mentioned companies as subsidiaries
* 2000: The subsidiaries of GIC were restructured as independent companies and at the same time GIC was converted into a national reinsurer
* 2002: Parliament passed a Bill delinking the four subsidiaries from GIC in July 2002
* 2005: Parliament passes Bill to raise foreign investment stake in insurance companies to 49 per cent. Beyond 26 per cent, they required Foreign Investment Promotion Board nod
* 2016: Up to 49 per cent foreign investment made automatic
*Today, there are 28 general insurance companies, including the Export Credit Guarantee Corporation of India and Agriculture Insurance Company of India
Source: Business Standard