The government has set the ball rolling for the listing of two general insurance companies by asking the General Insurance Corporation (GIC Re) and New India Assurance (NIA) to start the process by appointing merchant bankers. According to sources close to the development, GIC Re and NIA have already appointed a merchant banker to work on the valuations.
“Finance ministry officials have asked to come out with the valuation by December. We have already given this mandate to a merchant banker,” a senior insurance official said on condition of anonymity.
“Valuation is important to decide on the extent of the dilution. The government is open to both — disinvestment and stake dilution via fresh issuance of shares,” ministry sources added. It is understood that the government is looking to dilute around 10 per cent stake in each of the companies.
Last month, the ministry had a meeting with five state-owned general insurers — New India Assurance, National Insurance, Oriental Insurance, United India Insurance and GIC Re on the issue.
Both GIC Re and New India Assurance, which are the biggest among the state-owned general insurers, have a net worth of around Rs 8,000 crore. During 2011-12, GIC Re, the designated national reinsurer, made a loss of Rs 2,450 crore.
However, all these companies have some operational inefficiencies. Unsustainable premiums and poor underwriting standards have been the major reasons behind this loss. For instance, New India made an operational loss of Rs 538 crore during 2011-12. However, on the back of robust investment income, its net profit for the year shot up to Rs 179 crore. During 2010-11, the insurer had made a loss of Rs 421 crore. Over the last three years, four state-owned non-life insurers made a loss of Rs 15,000 crore. These players account for 55 per cent of the total Rs 47,000-crore non-life insurance market in India.
Keeping the IPO plan in mind, the finance ministry has been asking the general insurance companies to tone up their performance. These insurers have been plagued with huge losses over the last three years. Recently, the ministry asked them to raise premiums to the de-tariff era to boost profitability and improve the combined ratios, hovering around 120 per cent. Besides, over the last few months, the ministry has been nudging these insurers to curtail their expenses and improve efficiency to shore up their operating margins.
GIC Re has been asked to stay away from loss-making portfolios like motor and group health insurance. Insurers were also asked to rationalise their loss-making branches, as nearly 50 per cent of the branches were making losses.