Cap­i­tal Woes may Hit Govt’s Plans to List In­sur­ers

The Economic Times - - Finance & Commodities - Shilpy.Sinha @times­group.com

Mumbai: The gov­ern­ment’s plan to list five gen­eral in­sur­ers may have hit an obstacle with the fall­ing cap­i­tal po­si­tion of at least two com­pa­nies — Ori­en­tal In­sur­ance and Na­tional In­sur­ance.

Or i e n t a l In­sur­ance Com­pany has a sol­vency mar­gin of 1.1 times and Na­tional In­sur­ance Com­pany is at 1.26 times against the reg­u­la­tory re­quire­ment of 1.5 times. Sol­vency mar­gin is sim­i­lar to cap­i­tal ad­e­quacy of banks — it is the min­i­mum ex­cess on in­surer’s as­sets over its li­a­bil­i­ties set by the reg­u­la­tors.

In­suranceReg­u­la­to­ryand Devel­op­ment Author­ity has pre­scribed that all in­sur­ance com­pa­nies main- tain 1.5 times sur­plus over li­a­bil­i­ties at all times. “Sol­vency is a reg­u­la­tory re­quire­men­tand­no­ta­cap­i­tal mar­ket re­quire­ment,” said A Hoda, of­fi­ci­at­ing chair­man and man­ag­ing di­rec­tor of United In­dia In­sur­ance. “Sol­vency for com­pa­nies fell on higher pro­vi­sions on third party mo­tor pool. Fun­da­men­tals of com­pa­nies are in place.”

Two other state-run gen­eral in­sur­ance com­pa­nies — New In­dia As­sur­ance and United In­dia — have sol­vency mar­gins of 1.53 times and 2.3 times.

How­ever, if fair value and realestateareused­in­cal­cu­lat­ing sol­vency mar­gins, the two com­pa­nies may not have any is­sues. Na­tional In­dia has a fair value of ₹ 6,000 crore and many real es­tate prop­er­ties which are not used in cal­cu­lat­ing solv e n c y. N e w In­dia As­sur­ance and Gen­eral In­sur­ance Cor­po­ra­tion Re are ex­pected to be the first two to hit the stock ex­changes. “Val­u­a­tion de­pends on mar­ket rep­u­ta­tion,” said Hoda.

The cab­i­net ap­proved the list­ing of pub­lic sec­tor gen­eral in­sur­ance com­pa­nies through a com­bi­na­tion of fresh is­suance of shares or of­fer for sale. Post the is­sue, the gov­ern­ment hold­ing in these com­pa­nies will come down to 75% from 100%. Af­ter the cab­i­net note, com­pa­nies have to com­ply with Sebi norms and get ap­proval from IRDA. “Gen­eral in­sur­ance com­pa­nies need cap­i­tal to fund their busi­ness growth re­quire­ment,” said G Srini­vasan, chair­man and man­ag­ing di­rec­tor New In­dia As­sur­ance. Gen­eral in­sur­ance in­dus­try is grow­ing at 18%-20% on a year-on-year ba­sis.

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