Move To Offload 24% Of Gic Equity
The government is expected to shortly initiate steps towards delinking General Insurance Corporation's (GIC) four subsidiaries. It may also offer 24 per cent of the insurance giant's equity to private investors.
A section of the insurance industry is against the proposed delinking and instead favours a merger of the four subsidiaries with the parent corporation. It is argued that such a merger would help the new entity in retaining its existing investment clout and also ensure favourable terms of trade while reinsuring policies abroad.
One of the main arguments against delinking the four subsidiaries is the financial position of Oriental Insurance and National Insurance. Under Section 40 C of the Insurance Act, the expenses of an insurance company cannot be more than 19.5 per cent of the premium collected. Both Oriental and National fail to fulfil this criteria.
These companies may have to go in for a round of cost cutting, which is likely to be opposed by their employees. However, an industry official pointed out that in many countries, a solvency ratio is used as a yardstick rather than the expenses ratio. The government could rely on this measure to bring the unions around.
Top GIC officials are reported to have made presentations to the finance ministry a few days back, outlining the benefits and drawbacks of both options.
In his address to both the houses of the Parliament, the President of India had said that steps were being taken to attract long-term pension and insurance funds from abroad. But the government is under heavy pressure from the Left parties to keep the private sector and foreign institutions out of the insurance sector.
Therefore, sources expect the government to follow a gradualist approach to the opening up of the insurance sector by allowing only minority participation in the first stages.
The approach would be similar to the government's efforts to take banks private, where it continues to retain 51 per cent of the equity in commercial banks.
In the life insurance segment, among the non-controversial measures, the government is expected to revise the investment norms in case of the Life Insurance Corporation of India.