Tepid debut: GIC Re falls on listing; trading at 7% discount to IPO price

GIC Re is the largest reinsurance company in India

Shares of General Insurance Corporation of India listed at Rs 857.50 on the National Stock Exchange, lower by 7 percent compared with issue price of Rs 912. The tepid debut comes despite the company raising  Rs 11,372 crore from its IPO. The GIC issue was sold between October 11 and October 13 and was subscribed 1.38 times.

GIC Re’s issue is the third biggest in the domestic markets after Coal India and Reliance Power. Coal India had raised Rs 15,470 crore in October 2010 and Reliance Power raised Rs 11,700 crore in 2008. Last month, two insurance companies, SBI Life and ICICI Lombard, had raised Rs 8,400 crore and Rs 5,700 crore respectively through  IPOs.

From its current ranking of 12 largest global reinsurer, the company is set to grow to the 10th spot during the current fiscal, given its healthy growth rate, a market source said.

At present, GIC Re is also the 3rd largest reinsurer in Asia.

It is also likely be the second largest Indian entity in the financial sector PSU listed space after SBI, the source added.

Alongside SBI, GIC Re is the country's leading MNC in financial sector with a global presence - it has branches in London, Dubai, Kuala Lumpur and a subsidiary in South Africa.

Analysts point out that diversification is the key in risk management and GIC Re writing business from most parts of the world already has good diversification.

The insurance and reinsurance industry is the latest to join the palette of choice for equity investors in recent times.

The Indian insurance market is entering a new phase after more than a decade-and-a-half of opening up of the sector which saw a spate of new private insurers setting up shop, many of them joint ventures with global insurers.

As compared to insurance business, which tends to be concentrated in a country or region, reinsurance business, though similar, usually has a global character and is akin to wholesale insurance business.

Providing insurance to insurers, reinsurers get involved with mega-risks and concentration of risks against natural and man-made calamities. This requires scale, strong balance sheet with good solvency ratio and diversification in the risk book.

GIC Re has shown very impressive growth trajectory during the last few years.

This can be expected to continue given that there is continued emphasis by the government on the increasing the land under crop insurance. With a country size that matches a continent and with over a dozen agro-climatic zones (as per National Agricultural Research Project), there is natural risk diversification in crop risk portfolio, analysts said.