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