Gic Plans To Invest $115 M In Overseas Arms

General Insurance Corporation (GIC), in a bid to boost the financial strength of its subsidiaries abroad, has sought the finance ministry's permission to infuse $115 million in its overseas operations. The corporation has also suggested that foreign partners be allowed to pick up 49 per cent stakes in these subsidiaries .

There are 22 wholly-owned GIC subsidiaries abroad which need funds.

The corporation will go in for restructuring its foreign operations at the cost of about $115 million. Most of it will be deployed to bolster the solvency margins of the subsidiaries abroad.

In fact, the plan for restructuring the foreign operations has already been submitted to the finance ministry .

 

The revamp plan envisages setting up of joint ventures abroad and allowing foreign partners to pick up equity. GIC plans to retain at least 51 per cent of the stake in these joint ventures.

The need to infuse more capital in these foreign operations emanates from the stringent norms of solvency margins insisted on by the countries where the GIC subsidiaries are operating.

The solvency margins are different for each country. But for the Indian companies the margins appear to be stiff.

In India, the general insurance business is still under the monopoly control of the public sector in which the writ of GIC remains final.

Section 40C of the Insurance Act, 1938, has made a reference to "limitation of expenses of management in general insurance business." This is invariably read with Section 17E of the Insurance Rules, 1938, which states that the prescribed limit of the management expenses of a company will not exceed 19.5 per cent of the premium income of the company concerned.

As Section 40C is in force along with the provisions in the technical reserve rules, the government never felt the need for separate guidelines on solvency margin for the insurance industry. Even now, GIC top brass feel that the system holds good and needs no change. However, GIC officers resent Section 40C as it has put a cap on salary increase.

When Indian companies operate abroad, they are not guided by the Insurance Act or Rules. Instead, they have to meet the solvency margins of the respective countries in which they operate.

Recently, GIC had to remit $13 million to enhance the equity base of the Indian company operating in Trinidad & Tobago.

Even if $115 million was poured into the overseas Indian companies, solvency margins would not be attained by most of them. Hence, GIC has suggested to the ministry that foreign partners should be allowed to pick up up to 49 per cent stake in each of these Indian insurance subsidiaries abroad.

The insurance company in Singapore is a slightly different case as the entire stake is owned by GIC along with its four subsidiaries. GIC holds 45 per cent of the stake in the Kenyan subsidiary in which 10 per cent controlled by LIC and the balance 45 per cent by the local bodies.