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Govt looks to get state-run insurance companies ready for listing

LiveMint logoLiveMint 23-02-2017 Remya Nair

New Delhi: The finance ministry will work closely with state-run general insurance companies to improve their solvency ratios—an important prerequisite for insurers to obtain regulatory approval for listing on the stock exchanges.

Solvency ratio is an indicator of the capital strength of an insurance company and is an indicator of the company’s ability to meet its short-term and long-term liabilities.

A solvency ratio of more than 1.5 will be required to obtain approval from the Insurance Regulatory and Development Authority of India (Irdai) to sell shares and list on stock markets.

The government will chalk out a plan with these firms to improve their solvency margins, said a finance ministry official who did not wish to be identified.

ALSO READ | Impact of listing on insurance premiums

Finance minister Arun Jaitley has said the five state-owned general insurers will be listed on the stock exchanges. The cabinet cleared the proposal in January, which will bring down the government’s stake in these firms from 100% to 75% in the next few years.

Oriental Insurance Co. Ltd, National Insurance Co. Ltd, New India Assurance Co. Ltd, United India Insurance Co. Ltd and national reinsurer General Insurance Corporation of India, or GIC Re, are the five companies that will be listed on the stock exchanges.

At present, only New India Assurance and GIC Re have the required solvency ratios, giving them a head-start in the race to hit the markets. As of end December, New India’s solvency ratio was 2.17. GIC Re had a solvency ratio of 2.92 as of September 2016.

K. Sanath Kumar, chairman and managing director of National Insurance, said the insurer is trying to improve its solvency margin ahead of listing. “We are getting ready for the initial public offering and the identification of merchant bankers and other agencies has started. We should be able to hit the market after meeting full solvency margin requirements in another 8-9 months,” he said.

ALSO READ | Listing of PSU general insurers may boost profit, improve solvency

“We are moving out of large loss-making health insurance, repricing our renewals, managing claims faster and more efficiently, settling third-party claims through compromise, redesigning reinsurance arrangements, looking at other forms of capital and taking other steps,” he said.

These measures have helped in increasing profitability and improving the solvency margins, which now stands at 1.31 as against 1.26 as of end September.

While Oriental Insurance’s solvency margin was also below the required 1.5, at 1.14 as of end September, United India Insurance’s solvency ratio was 1.55 as of 31 December.

Emails sent to the remaining four insurance companies and the insurance regulator Irdai remained unanswered.

The finance ministry official mentioned above said the capital position of the firms may improve in the last quarter as they book their investment income.

ALSO READ | Govt looks to raise Rs11,000 crore from listing of PSU insurers

“They have underwriting losses but they book their investment income in the last quarter. This will improve their balance sheets. We will review their position as of March 31 and then see how to proceed,” he said.

“The insurance companies will need to improve their premium rates and claim management systems ahead of listing. The finance ministry wants to make the state-run general insurance companies more accountable. Once listing happens, there will be shareholder expectations on returns and the boards and the management will need to be more accountable. This accountability is missing now,” said K. Ramachandran, an insurance industry expert.

Though all the five general insurance companies were profitable in 2015-16, two—Oriental Insurance and United India Insurance—reported losses in the first half of 2016-17.

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