Listing of state general insurers may be staggered. Here is why

The public listing of five non-life general insurance companies will most likely be spaced out. New India Assurance and General Insurance Corporation of India (GIC Re) will probably be hitting the capital markets in FY18 while others will be listed in subsequent years. Last month, the Cabinet gave its nod to list five non-life general insurance companies as part of government's move to reduce its stake to 75 percent from 100 percent in the insurers. Oriental Insurance Company, National Insurance Company, New India Assurance, United India Insurance and national reinsurer General Insurance Corporation of India, or GIC Re are the five insurers who will be listing. 

“The aim is to complete the process of listing of at least two players by March 2018. Solvency and underwriting performance are the top criteria,” said a senior ministry official. 

The reasoning behind this more staggered listing process is to give investors enough time between each initial offer. The chairman of a public sector general insurance company on road to listing explained that it will not be wise to get all the PSU non-life insurers listed at the same time. “We do not want investor appetite to wane with multiple listings in the same year. Hence, the government may decide on only one or two listings for FY18,” he added. 
A final note on the process and structure of the listing of the five entities will be circulated by the government among the stakeholders in the next few weeks. Among other reasons for the staggered process is also the fact that the solvency ratio of two of these insurers namely National Insurance (126 percent) and Oriental Insurance (114 percent) are below the prescribed minimum limit of 150 percent. A solvency ratio is a measure of the risk an insurer faces of claims that it cannot absorb. 
Further, the ministry also wants all the four general insurers to improve their underwriting positions and have a better pricing mechanism to minimize losses, so that a better picture can be presented at the time of listing of the entities. 
All these PSU insurers will also have to deal with minor hiccups like convincing their employee unions and take them into confidence before the IPO drafts are filed with the respective regulators. ICICI Prudential Life Insurance  is the first insurance company to get listed on the stock exchanges. It listed on September 29, 2016. While it is trading at a healthy price currently, it had listed below its issue price of Rs 334 a share on both Bombay Stock Exchange and National Stock Exchange even after the public issue was over subcribed by 10.5 times. 
After the Cabinet nod, the insurers have begun discussions to get a banker on-board for the Initial Public Offering (IPO). 
The timeline of the IPO will also be given by the government and once appointed, the bankers will take the deal forward. After bankers begin the process of valuation and take a decision on how much divestment of stake will be done, the respective boards of the insurers will meet to give their approval to the structure. Following this, the insurance companies will need to take an approval from regulatory bodies like Insurance Regulatory and Development Authority of India (IRDAI) and Securities and Exchange Board of India (Sebi). Post this, a draft red herring prospectus (DRHP) will be filed with Sebi for approval. Once this final approval is secured, roadshows will begin to gauge investor appetite for the IPO.
..source:Money control

Oriental Insurance, National Insurance and United India Insurance likely to be merged to fetch better valuations

NEW DELHI: India’s state-owned general insurance giants Oriental Insurance, National Insurance, and United India Insurance, who together have 34 per cent of the total market share and underwriting total direct premium of over Rs. 33,000 crore, are likely to be merged to create a stronger entity to fetch better valuations at the time of listing. 

In January the government formally approved to list five state run general insurers while announcing its intent to pare its stake in these firms to 75 per cent in one or more tranches. “It is in a preliminary stage. We are looking at various options,” a senior finance ministry official said. 

The listing plans of GIC Re, the state-owned reinsurer and New India Assurance is already in the works, the official said.  "Consolidation in state-run companies is being explored across all sectors. In insurance, it is necessary that we have presence of state run entities as they serve the larger purpose of financial inclusion and also to ensure there is there is enough competition," he said. 


Finance minister Arun Jaitley in his budget speech said one of the themes under the broad agenda in financial sector is ‘growth and stability through stronger institutions.’ 
"In that spirit, we are looking at various options," the above quoted finance ministry official added. 

According to insurance regulator Insurance Regulatory and Development Authority of India (IRDAI) annual report 2015-16, market share of Oriental declined to 8.63 per cent in 2015-16 from 8.75 per cent in the previous year and National Insurance fell to 12.43 per cent from 13.27 per cent in 2014-15. 
These three firms have also been struggling with their solvency ratio, a measure of excess of capital and assets over the insured liabilities. Thus, the government may not be able to unlock their full potential if individually listed. 

"We have to look at all aspects, including HR issues. These decisions take time," the above quoted official added. 
Oriental Insurance Company has a solvency margin of 1.1% and National Insurance Company is at 1.26 per cent against the regulatory requirement of 1.5 per cent. United India stands at 1.56 per cent but had notched up net losses of Rs.429 crore in the first half of the current fiscal. 

"By these methods, central public sector enterprises (CPSEs) can be integrated across the value chain of an industry. It will give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders," Jaitley said in his budget speech

Union Budget 2017: Insurance industry hails decision to hike coverage under PMFBY

The general insurance industry today hailed the Union Budget and welcomed the government’s decision to increase the coverage under the Pradhan Mantri Fasal Bima Yojana from 30 per cent to 40 per cent in 2017-18 and 50 per cent in 2018-19.

The government has increased its spending on PMFBY to Rs 13,240 crore, which the industry believes will help bring more farmers under the insurance cover.

“Indian farmers need risk mitigation mechanism in the form of insurance and PMFBY will compensate them whenever they suffer crop loss during natural disasters,” New India Assurance CMD G Srinivasan said.

New India has underwritten premium of Rs 1,100 crore under the scheme in the current fiscal so far and it plans to increase it to Rs 2,000 crore in the next financial year.

“The increase in insurance cover under PMFBY will result in increase in premium by 15-20 per cent by the industry in the next fiscal,” National Insurance chairman and managing director, Sanath Kumar said.

ICICI Lombard MD & CEO, Bhargav Dasgupta said, “This government has done more to promote insurance as a risk mitigation tool and the decision to increase the coverage under the Pradhan Mantri Fasal Bima Yojana to cover 40 per cent of crop area is a continuation of that approach.

“The budget aims at continuing with the government’s agenda of pursuing an inclusive and long-term development of the economy by focusing on the core enablers, including infrastructure, digitisation, rural development, among others. New initiatives, such as a proposed model on contract farming are a welcome move,” he said.

“With a view to boost the agricultural sector, the government has increased the coverage under the Pradhan Mantri Fasal Bima Yojana from 30 per cent to 40 per cent in 2017-18 and 50 per cent in 2018-19 which will help farmers get insured,” M Ravichandran, President – Insurance, Tata AIG General Insurance said.

Farmers will also benefit further with the government spending Rs 13,240 crore in fiscal 18 on crop insurance, he added.

Swiss Re, which has recently opened its India branch, believes that it’s a positive move to close the protection gap in agriculture

“Increasing allocations for Fasal Bima Yojana and targeting greater insurance coverage is a positive move to close the protection gap in agriculture,” Swiss Re India branch chief executive Kalpana Sampat said.

“A robust crop insurance framework is an important stepping stone towards food security and financial stability for farmers,” she added.

70 new general insurance products in FY17

In the current financial year, about 70 new products, including add-ons, have been launched in the general insurance segment, according to the Insurance Regulatory and Development Authority of India (Irdai). While several products were add-ons to the existing policies, most new policies were in crop insurance and motor insurance.

According to senior officials, general insurance sector have already received Rs 10,000-12,000 crore from crop insurance and premiums is likely to touch Rs 18,000-20,000 crore by the end of current financial year. “In the first year itself, industry is expecting to get Rs 20,000 crore through crop insurance and premiums are likely to grow in the coming year. It’s one of the new segment that general insurance industry is focusing on,” said CEO of a private general insurance company.

According to the regulator, even long-term two wheeler policies were filed by various insurers. Industry experts claim that this segment has seen premium in the range of Rs 300-500 crore.

HomeMoney Insurance Regulatory and Development Authority of India proposes outsourcing norms for insurers Insurance Regulatory and Development Authority of India proposes outsourcing norms for insurers

In order to ensure that insurers follow prudent practices for management of risks arising out of outsourcing, Insurance Regulatory and Development Authority of India (Irdai) has proposed new norms.

Insurers cannot outsource activities such as investment and related functions, fund management including NAV calculations, compliance with AML and KYC, product designing, decision making in underwriting and claims functions and policyholders’ grievances redressal.

Policy servicing will be the core activity for the insurer, who will be responsible for the services rendered. However, the activities that support policyholder servicing can be outsourced at the discretion of the insurer.

Where collection of premiums is outsourced, insurers will have to put in place procedures for issuance of premium acknowledgements instantaneously to policyholders on collection of premiums

Board of directors will put in place an outsourcing policy to cover the frame-work for assessment of risks involved in outsourcing including confidentiality of data and quality of services.

The board should put in place an annual review of the outsourcing pollicy, keeping in mind changes in internal and external environment impacting the out-sourcing arrangements. It will be respon-sible for degree of due diligence required for other non-core outsourcing activities.

The outsourcing arrangements will be governed by written agreements that are legally binding for a specified period, subject to periodical renewal.

Outsourcing contracts will have clauses on information and asset ownership rights, IT, data security and protection of confidential information.

The contract will have clauses on guarantee or indemnity from outsourcing service provider towards his commitment including liability for any failure.

Insurers will have to ensure that the outsourcing service provider’s security policies, procedures and controls will enable it to protect confidentiality and security of policyholder’s information.

Promotion Policy for Supervisory, Clerical & Subordinate Staff

To,

The Principal Office Bearers of Check-off qualified Class III/IV Unions / Associations of GIPSA Companies,

Dear Sir,

Please refer to our discussions in the past on the captioned subject when it was envisaged to hold discussions on review of the Promotion Policy for Supervisory, Clerical & Subordinate Staff, as suggested by some of the Unions / Associations, immediately after the Wage Revision exercise is concluded.

With the issuance of Notifications for Wage Revision, the Wage Revision Exercise is substantially coming to a close and accordingly, it is proposed to hold discussions with the Check-off qualified Unions / Associations of Class III/IV employees of GIPSA Companies on the subject.  However, for a meaningful dialogue, it would be better if you could kindly let us have a list of your suggestions for improvement in the Promotion Policy for Supervisory, Clerical & Subordinate Staff, alongwith justification thereof before we hold the dialogue.

We expect your suggestions to reach us latest by Monday, the 8th February, 2016, where after, we would convey to you the schedule for our discussions thereon.

Thanking you and looking forward to your continued co-operation, 

Regards,

A.K. Singhal

Adviser,

General Insurers' (Public Sector) Association of India

Ground Floor, Gate No. 2, Jeevan Tara Building,

Parliament Street, New Delhi-110001

Tel. No. 011-23744591, Fax No. 23744599

Mob. No. 83350-80094 & 93503-55005