The equity market will see a spate of initial public offerings (IPOs) of general insurance companies, predominantly of government-owned companies. The Finance Minister in his Budget speech had announced the listing of four state-owned non-life insurers and also the only reinsurance company to make them financially strong and enable them to expand business.

The four state-owned general insurance companies are – New India Assurance, Oriental Insurance, National Insurance, United India Insurance and the only one national reinsurance company General Insurance Company. The listing of insurers will help in improving the quality of disclosures and make companies answerable to investors. It will also help customers to make informed decision regarding their policies, claims and other products-related features.

The listing will help analysts understand the business of non-life insurance companies better. Overall, listing of companies will help focus on profitable growth and consequently enhance their ability to raise capital in the future. The money raised through listing of PSU non-life companies will also help reduce the Central government’s fiscal deficit. The government has set an ambitious target to raise Rs 72,500 crore in 2017-18 from disinvestment, of which it expects to get 15% from the listing of state-owned general insurance companies.

General insurance: industry matrix

The general insurance industry reported highest ever year-on-year growth of 32% in premium collection in FY17 because of crop insurance. There is a steady increase in private sector market share over the last five years to 44% in Fy17. And in July this year, for the first time ever, private sector non-life insurance companies moved ahead of the four state-owned companies in premium collection.

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In FY17, private sector general insurers reported smart growth of 35% driven by crop insurance as they had 73% share in crop insurance business. The government’s focus to improve acreage under insurance will continue to drive volume. State-owned companies reported lower growth of 24.5%. Motor insurance remains the largest segment with 44% market share, followed by health and personal accident cover.

The solvency level of public sector general insurance continues their downward trend amidst high underwriting losses and reluctance to churn equity book. However, despite strong demographic profile, the penetration of general insurance is still abysmally low at 0.72% of GDP. In terms of profitability, private insurance companies have lower claims ratio than state-owned companies.

So, for the state-owned general insurance companies to grow at 20% CAGR over the next five years, the capital requirements is estimated at around Rs 37,000 crore and the private sector will require around Rs 9,000 crore. As part of the government’s plans to list non-life insurers in which it holds stakes, New India Assurance Company Ltd has filed the prospectus for its initial public offering (IPO). Similarly, National Insurance Company will also go for public offering. The country’s only state-owned reinsurer GIC filed its draft documents to raise over Rs 10,000 crore through an IPO. In private sector, ICICI Lombard General Insurance will also go public.

Regulatory clearance

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