Central government may list/divest only the top general insurers: Experts

IANS 01 March 2016

The central government owns seven general insurers - GIC, New India Assurance, National Insurance Company, Oriental Insurance Company, United India Insurance Company, Export Credit Guarantee Corporation and Agriculture Insurance Company of India

The central government may list not more than two of six general insurance companies owned by it or may divest its holding, said industry experts on Monday referring to union Finance Minister Arun Jaitley's announcements in his 2016-17 budget speech.

Presenting the budget, Jaitley said: "Public shareholding in government owned companies is a means of ensuring higher levels of transparency and accountability. To promote this objective, the general insurance companies owned by the government will be listed in the stock exchanges."

Jaitley did not reveal any names.

However, industry experts told IANS that the government might be looking at General Insurance Corporation of India (GIC), the national re-insurer, and New India Assurance Company Ltd and would probably ask Life Insurance Corporation of India to buy out its divested stakes.

Jaitley did not mention the names of the companies that the government is looking at listing, there are speculations as to the probable candidates.

A senior official in a government owned insurer told IANS that there were discussions on listing of the general insurers. It is also speculated that GIC and the country's largest general insurer could be the possible candidates for listing/divestment.

"Insurance Amendment Act 2015 amended General Insurance Business Nationalisation Act and introduced a new section 10B providing that GIC and the public sector general insurers may raise their capital for increasing their business in rural and social sectors, to meet solvency margin and such other purposes as the Central Government may empower," K.K. Srinivasan, former member, Insurance Regulatory and Development Authority of India (IRDAI), told IANS.

He said the amendment also clarified that the shareholding of the central government shall not be less than 51 percent anytime, thus setting the stage for partial divestment of GIC and other general insurers.

"With continued underwriting losses, the PSUs have been resorting to sale of investments to show profits and pay dividends to government. But this cannot last long since the PSUs will run of their stock of age old investments acquired at low prices sooner or later and the new investments will yield very little on sale," Srinivasan said.

Thus from the government viewpoint, the listing of PSU insurers in the Stock Exchanges and gradually divesting government holdings is a smart move.

Srinivasan however said the question is who will buy and at what prices the government owned insurers would fetch in the stock market.

He said all the insurers do not command equal respect.

As on now, New India and United India may have relatively better valuations than Oriental, National and others, Srinivasan said.

"The most likely scenario is for the government to nudge LIC or direct LIC to buy stakes in the public sector insurers using the absolute powers that the government has under (section 21 and 43 amongst others) of the LIC Act, till the market becomes favourable," he said.

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