Government of India recently postponed its decision with regard to the listing of four State owned General Insurance Companies with the Stock Exchanges. The reason quoted by the Finance Ministry is that the financial healths of these companies are not sound to exert a pull on the investors.
With regard to the listing of four State Owned General Insurance Companies, a senior official from Finance Ministry, on a confidential note, confided that the four State owned Companies are making losses on their underwriting profits, there has been reduction in their market share and have an adverse combined ratio.
The total underwriting losses of the four general insurers in 2011-12 was over Rs. 6,000 crores and combined loss ratio, which measures the operational competence, is 120% as against the desired ratio of 100%. Further on account of the above reasons, their valuation will be low which will not lure any investors.
He further added that except in the year 2011-12 wherein only New India Assurance and United India Insurance Company paid bonus to the government of a mere amount of Rs. 118 crore, other companies have not paid out any dividend in the past and hence the Finance Ministry has even dropped the idea of getting its valuation done. Also, this dividend was declared out of profits from investment income, which comes through earning from interest, dividends and sale of shares in open market.
He also disclosed the information that, as an alternative to the above, at one point of time, Government were also looking to break down this four companies into two groups to bring synergy in their operations, however this planned has been abandoned on account of operational and cultural issues. However other senior official said on a positive note that if this plan would have gone ahead then this could have been a first step towards merger in state run general insurance.
In the year 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.
According to the Chairman of a State owned Insurance Company, the industries is going through the tough phase and are facing lots of challenges, especially in motor and heath segments. He further disclosed that Government has asked to set up a working group to look in to the motor, health and fire portfolios and formulate a plan to improve the pricing of these products.
According to Mr. Vivek Gupta, partner with BMR Advisor, dealing in mergers and acquisitions said that insurance premium is expected to correct in the long run and there should be long term investible interest. Also according to Analyst since the government owned insurance companies are not making profits, investors make may not attribute to higher valuation, however due to strong secular augmentation in Indian markets there may be buyers of the shares.
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