The Centre is mulling an offer for sale (OFS) in the General Insurance Corporation (GIC) during the second half of 2018-19, a year after its listing. The timing of the OFS, however, would be decided after the stock recoups its recent losses, officials said.
The government listed GIC Re, India’s biggest reinsurer, in October last year. The Centre had sold a 12.5% stake to mop up Rs 9,704 crore in disinvestment revenue, while the company issued fresh shares to raise Rs 1,553 crore to fund business expansion.
However, the stock has since been trading below its issue price. It is now trading close to 20% lower than the issue price of Rs 912. A 10% stake sale in the firm would fetch about Rs 6,400 crore at current market prices, about Rs 1,500 crore less than what it would have raised had prices not crashed since the IPO.
Global catastrophes and high claims in the Pradhan Mantri Fasal Bima Yojana (PMFBY) has hit the company, with the overall claims ratio rising from 81% in FY17 to 86.5% in FY18. Its FY18 net profit was `3,234 crore, up only 3% year-on-year, against a 10% growth reported in FY17. GIC’s PMFBY portfolio had a combined ratio of 107% in the past two years. The combined ratio, a measure of insurance company’s profitability expressed as total cost to total revenue, above 100% indicates losses.
GIC provides reinsurance across fire, marine, motor, engineering, agriculture, aviation, health, liability, credit and financial and life insurance. According to CRISIL Research, the company accounts approximately 60% of premiums ceded by Indian insurers to reinsurers in FY17.
Despite the volatility in the stock, officials see potential in the company as it will continue to retain its dominant position in the domestic market. According to current regulations, Indian insurers seeking reinsurance cover for their risks would have to give first preference to GIC Re.
While the Centre managed to mop up a whopping Rs 1 lakh crore from disinvestment in FY18, the target of `80,000 crore for this fiscal year is challenging, as the pipeline is modest and the markets have become volatile. Besides, the privatisation bid of the Air India-Air India Express (AI-AIE) combine has failed to take-off as no bidder showed interest.