Government puts on hold plans to list state-run insurers

The government has put on hold its plan to list state-run general insurers, with the finance ministry taking the view that the current financial health of these companies is not conducive for listing.

The finance ministry was earlier exploring the possibilities of listing the four state-run general insurance firms and was even preparing them to get their valuation done. “The four general insurers are making losses on their underwriting profits, their market share has come down and their combined ratio has been adverse. So, their valuation will be low which will not encourage any investors,” said a senior finance ministry official, requesting anonymity.

The total underwriting losses for the four general insurers in 2011-12 was over Rs 6,000 crore and the combined ratio — which measures the operational efficiency — was above 120% as against the desired 100%. “They are making profits only because of investment income, which comes through earnings from interest, dividend and sale of equities in secondary market,” the official added.

The government has also been unable to generate any dividends from the state-run insures. In 2011-12, only New India Assurance and United India Insurance paid dividend to the government worth around a paltry Rs 118 crore. “In the current situation, it won’t be prudent to even go ahead with their valuation exercise,” the above quoted finance ministry official said.

The government at one stage was also looking to divide the four general insurers into two groups to bring synergy in their operations. “The plan has been shelved for the moment as there were operational and cultural issues. This could have been a step towards merger in state-run general insurers,” said another government official, aware of the developments.

The general insurers, however, feel that the industry itself is going through difficult times and all companies are facing problems, especially in the health and motor segments. “The government has asked us to set up working groups to look into motor, health and fire portfolios. We are formulating a strategy to improve upon the pricing of these products,” said chairman of a state-run insurance firm.

Analysts say that since the present structure of general insurers is zero profitability in their basic business, investors may not ascribe to top-dollar valuation, but given the strong secular growth that Indian market offers, there may be takers. “Globally, the investment income of insurers also plays an important role in their valuation.

The insurance premium structures will also correct in the long run and there should still be long-term investible interest,” said Vivek Gupta, who deals in mergers & acquisitions, and is a partner with BMR Advisors. Earlier in 2012, the finance ministry has directed general insurance firms to restructure their loss-making portfolios, improve their claim management, and avoid pricing warfare among state-run firms.

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