Much preparation ahead for listing state-owned general insurers

The government is planning to list the public general insurance companies. In his budget speech, finance minister Arun Jaitley said that the general insurance companies owned by government will be listed on the stock exchanges. While the process before the actual listing takes place is expected to be long, sector officials expect this to bring more transparency in their operations.

At present, New India Assurance, United India Insurance, Oriental India Insurance and National Insurance, apart from the sole domestic reinsurer General Insurance Corporation of India (GIC) are the five public sector general insurance companies. However, Jaitley did not share any timeline of the listing of these entities.

 

In his budget speech, Jaitley said that public shareholding in government-owned companies is a means of ensuring higher levels of transparency and accountability. To promote this objective, he said that the general insurance companies owned by the Government will be listed in the stock exchanges.
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Prior to this, there have been discussions in the past between finance ministry and these insurers on their possible listing. No insurance company is currently listed on the stock market. It is anticipated that New India, which is among the largest in the public sector, could be the first to be taken to the listing path.

G Srinivasan, chairman and managing director of New India said that the listing of the insurance companies could be done in phases and that they have not been told of any timeline. He added that the consultation process for the listing could begin soon since real action will be taken after that.

New India Assurance, the country's largest general insurer, had posted a 31 per cent increase in its net profit for the financial year 2014-15. The insurer had posted net profit of Rs 1,431 crore for FY15 compared to Rs 1,089 crore in FY14. The global business (premium) including Indian and abroad stood at Rs 16,050 crore showing a growth of 12.2 per cent. For FY16, they have set a target of Rs 18,000 crore global (India plus abroad) premium for FY16 and Indian premium of Rs 15,000 crore.

Listing will not only involve overhaul of existing processes, experts point that in the run-up to the Initial Public Offer (IPO) for the listing on the exchanges the way of functioning of these insurers would have undergo a change. Anuraag Sunder, Director, PwC India said that the government will not only look at the market timing for listing but also look into whether the entities are ready. "There will be a lot of pressure on the top management of these insurers to better the systems since accountability and transparency would be the main focus," he added.

Before a listing actually takes place, a clean up of their books and operations would be essential, said industry officials. This would involve bringing down losses across segments like motor third party, group health, fire and engineering among others. Further, underwriting profitability also would be essential to get the desired valuation from the markets.

R M Vishakha, MD & CEO, IndiaFirst Life Insurance said that this is the first time that it would be interesting to see the impact that listing of the company would have on operational efficiencies and results. Underwriting losses still remain a concern in the general insurance industry due to rising claims from segments like motor and health. This means that the premiums collected is not sufficient to meet the demands of claims.

Since they are not listed, no mandate is given to all insurers including public sector insurers to disclose all information on a periodic or quarterly basis like listed companies. Hence, once this happens, not just financial results, other smaller company decisions and activities would need to be made public. The move to initiate listing of public general insurance companies is expected to bring in greater responsibility and transparency in their operations, according to M S Sreedhar, Managing Director & CEO, Royal Sundaram General Insurance.


Further, experts said that company books would be watched closely not just by the government, but also public shareholders who would then own stake in these insurers. A senior insurance consultant added that this would mean every decision could be questioned by shareholders. making them more accountable and prevent them to indulge in extreme competitive practices including discounts in premium that could impact the balance sheet.