With two of the biggest initial public offering of public sector general insurance firms getting tepid response from retail investors, National Insurance, which is planning to come out with its IPO in March-April 2018, is expected to tweak its IPO strategy.
“Insurance is a very complex sector and not many retail investors understand it. However, having said that, we would definitely incorporate the learning from the IPOs of New India Assurance and General Insurance Corporation in our offering. We will sit with their analysts and discuss the strategies,” said K Sanath Kumar chairman, National Insurance Company.
According to sources, National Insurance had been looking to raise about Rs 4,000-5,000 crore.
Notably, analysts have pointed out that the large issue size and high price of public sector general insurance firms have been key reasons for poor response from retail investors. Due to high prices, retail investors did not foresee any listing gains on the issues, according to analysts. Also, combined ratio, a key measure of financial health of insurance firms, calculated by diving the sum of claim-related losses and general business costs by the earned premiums over a period, has been higher for public sector firms.
“A lot of IPOs got bunched up in the last few weeks, which could have impacted the outcome. Also the issue size was quite big and for over subscription, one needs to have substantially high amount of subscription. On the other hand, for smaller issue sizes, the pent-up demand is higher. Since the prices were high, retail investors did not see any listing gains. On the other hand, institutional investors, who typically don’t go for listing gains, have seen obvious long term returns in the issues,” said Karthik Srinivasan, Senior Vice President, ICRA.
“The valuation for both GIC and New India Assurance was on a higher side, while the operational parameters are that as strong as private sector peers. Globally, the combined ratio for general insurance sector is around 103-104 per cent, whereas for public sector general insurers in India it is around 115 per cent on an average. Also, the issue size itself was so big that retail investors did not see any gains,’ said Jaikishan J Parmar, Research Analyst, Angel Broking.
