The Cabinet Committee on Economic Affairs (CCEA) on Wednesday approved listing of five state-owned general insurance companies, thus paving the way for reducing the government’s stake in these insurers from 100% to 75%.
The Cabinet Committee on Economic Affairs (CCEA) on Wednesday approved listing of five state-owned general insurance companies, thus paving the way for reducing the government’s stake in these insurers from 100% to 75%. Senior officials in the industry say they expect a price-to-book multiple of anywhere between 1.2 and 1.5 times while offering their shares to the public.
The government can raise anywhere between R18,400 and R23,000 crore by offloading its 25% stake in these five companies. The industry officials, however, said that this is the base case scenario and the government might be able to raise more money if the market is conducive. New India Assurance Company, United India Insurance, Oriental Insurance Company, National Insurance Company and GIC Re will list on stock exchanges.
Ashvin Parekh, MD at Ashvin Parekh Advisory Services LLP, said, “Though the announcement was made in the last budget, I am glad that cabinet has finally cleared it. Along with initial public offering (IPO), now general insurance companies (GIC) should strengthen their governance, skills and even compensation.” On the pricing he added that, “I think the benchmark in the industry is around 1.2 to say 5 times the book value, so even in these GICs, it could be around this range.”
Senior officials also added that, HDFC Ergo had bought L&T General Insurance at the price to book of 1.8 times in June last year. Fairfax Financial Holding had bought a 9% stake in ICICI Lombard General Insurance at the price to book of 5.7 times in October 2015. Participants in the market also say this offering would hit market only in next financial year.
Even solvency ratios have not been encouraging if compared to other private insurers. According to the data from Insurance Regulatory and Development Authority of India (Irdai), solvency ratio of National Insurance is 1.26% and 1.59% for Oriental Insurance as on March 2016. But New India Assurance has one of the highest solvency ratio of 2.3% among large general insures in India.
On foreign players buying the stake in the PSU general insurers Parekh said, “Its the boards decision. but its very unlikely that some foreigner will buy the stake in the four companies. Yes they can participate in the IPO and can invest, but stake sale is very unlikely.”
The data from general insurance council also that up to December 2016, gross direct premium underwritten by the industry was R91,517.92 crore compared to R69,875.97 crore December, 2015 a growth of 31%.