Senior executives in public sector general insurance companies said that they were exploring the possibility of funding as much as 45-50 per cent of the VRS outgo through sale of equity in their portfolio.
They added that what lent support to their plan was the fact that the markets were booming and stocks, mostly blue-chips, have been purchased at a much lower price and were trading at a significant premium to the acquisition price.
New India Assurance, Oriental, National and United India Insurance are not active players in the markets and executives often argue that they did not possess the right research back-up that was required to churn their portfolios. In any case, equities, form a very small percentage of the total portfolio of the public sector general insurance companies.
Companies such as the Delhi-headquartered Oriental Insurance has already booked around Rs 40 crore profit through sale of equities. Some more sale is expected to take place over the next two months with the markets expected to rise further.
The profitability of the four public insurers has been under pressure owing to losses on the underwriting business which has been offset by profits from investment. The underwriting losses have been attributed to portfolios like motor insurance where the claims are higher than the premium earned from the segment.
The finance ministry has ruled out any support to the companies to meet the VRS expenses. The proposal has been cleared by finance minister Jaswant Singh but the law ministry had desired that the schemes get concurrence from the board of the four companies.
The companies have received the go-ahead from their directors and the finance ministry is in the process of sending the scheme for law ministry
