Get Ready to Own a Stake in Your Favourite Insurer as Six Companies Line up IPO Plans

For equity investors, the drought of investing options in insurance all these years may turn into a flood this fiscal. At least six firms have lined up initial public offerings (IPOs), five of them state-owned as they look to feed government coffers. The sixth is ICICI Prudential Life, which is poised to realise the value of its more-than-a-decade-old investment. The combined offerings could raise more than Rs 30,000 crore from the market based on private transactions although valuation details are still sketchy. Investment bankers are yet to be engaged for the sale of stakes in the state-owned companies, said executives at these firms. 

The state-run companies are general insurers — New India Assurance, National India, United India and Oriental India and Reinsurer GIC Re. All have submitted share-sale proposals to the government. HDFC Life, which had been the first one to declare IPO plans, has taken a step back as it plans to merge with Max Life. Since the holding company of Max Life is listed, HDFC Life could get on the bourses through a reverse merger. "Boards of most companies are seeking approval for 10% stake sale from the ministry," said the chairman of a state-run insurance company who did not want to be identified. 

The Insurance Amendment Act allows the government to reduce its stake to 51% in them. More than a decade after letting in the private sector, the insurance industry in India is still in its infancy with just 3.3% of the population covered by it compared with 6% for Thailand. The life insurance industry is growing at 8-9% and general insurers are expanding at 13-15% a year. After the initial phase of investment, they have begun to make profits. "If you look at general insurance, the business model is a lot better established than the life side," said Shashwat Sharma, partner at KPMG. "In general insurance, you make profit sitting on your P&L. You have established benchmarks like price to earnings and price to book ratios in general insurance and health." State-run insurers are financially strong unlike government-owned banks, which are hobbled by bad loans. Factors that need to be assessed include investment profit, underwriting profit, brand value and solvency margin. 

"The valuation report will be prepared by an independent actuary and he will carry out actuarial valuation of every portfolio by looking at loss experience of each portfolio to arrive at the valuation," said the chief of another insurance company. 

Unlike state-run banks, the government does not need to capitalise general insurance companies every year. They are adequately capitalised and pay dividends to the government. GIC Re paid a dividend of Rs 860 crore in 2015-16. The government has no plans to list LIC, however. "Life insurance is too complicated and lot of it depends on actuarial assumptions whereas general insurance is more like any other business - liabilities are one year and less complicated," said Abizer Diwanji, national head of financial services at EY.