National Insurance IPO deferred to FY18

Government-owned National Insurance has postponed its initial public offering (IPO) of equity to the next financial year (beginning April 1).

Earlier, its offer was expected by March 2018. “The government is more occupied with Budget preparations,” K Sanath Kumar, chairman, told Business Standard.

After the IPOs of New India Assurance (NIA) and General Insurance Corporation (GIC), also government-owned, National Insurance was next. Those prior IPOs, however, got only lukewarm response from small investors. The Kolkatabased insurer had studied how both the IPOs fared and given its assessment to the government.

“We presented the government with various scenarios, as to how much we can raise and the growth capital requirement over the coming years. It is now up to the government to decide on price band, etc,” said Kumar.

Analysts say large issue sizes and high prices were key reasons for the poor response to IPOs of other public sector insurance entities. The high share price meant small investors did not foresee any listing gain. And, the combined ratio, a key measure of financial health for insurers (dividing the sum of claim related losses and general business costs by earned premiums over a period), has been higher for public sector firms.

For NIA, the IPO price band was ~770-800; for GIC, ~855-912. Against this, it was ~651-661 a share for private sector ICICI Lombard, which recently had an IPO. Retail (small investor) subscription for NIA was around 11 per cent of what was allotted for the category; for GIC, 60 per cent. For ICICI Lombard, it was around 1.2 times the number of shares on offer in the segment.

Also, it appears, since many insurance IPOs had got bunched over recent months, the government wants a time gap with the next public sector one, say sources at National Insurance. Although having a big pool of investments, public sector general insurance companies have been struggling to make profit in the core business. At end-March, National Insurance’s combined ratio was as high as 134.93 per cent, although its solvency ratio had improved to 1.9 per cent by then, from 1.26 per cent at the end of September 2016.

Similarly, NIA's combined ratio has consistently remained high for five years, at a little more than 115 per cent, according to a report by Angel Broking. In 2016-17, the company reported a combined ratio of about 120 per cent, the report adds, though this had improved in the final quarter to 112.57 per cent. It was 118 per cent at the end of the first quarter of the present financial year.

Analysts say large issue sizes and high prices were key reasons for the poor response to IPOs of other public sector insurance entities. The high share price meant small investors did not foresee any listing gain