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Friday, Jun 11, 2004

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PSU insurers likely to shelve public float plans

C. Shivkumar

Bangalore , June 10

PUBLIC sector general insurers' proposals for recapitalising by tapping the domestic equity markets have been put on the back burner.

Sources said that the general insurers would have to entirely depend on internal resource generation to improve their capital or support from the budget.

The internal resources generated included profits from sale of some of investments, in particular equity holdings. Since nationalisation, however, none of the insurance companies has received any budgetary support.

The sources said that in the last fiscal almost all the four companies had generated profits in excess of Rs 400 crore by liquidating some of their equity holdings. These profits were used to shore up their respective capital bases.

Insurers had opted to sell their equity holdings since none of them is permitted to use appreciation in value for solvency purposes under the current guidelines of the insurance regulator. Consequently, most of them had opted to sell their holdings to realise profits.

The sources said that the major opposition to recapitalisation from the financial markets came from the left parities. They said the fear was that the recapitalisation would be used for dilution of government stakes in the general insurance companies and eventually privatised.

The four PSU general insurers — New India Assurance Company, National Insurance Company, United India Insurance Company and Oriental Insurance Company — presently have a net worth of about Rs 10,000 crore.

The sources said that the initial proposal was to allow one or all the four companies to tap the markets raising their capital. In fact, this was one of the major reasons for transfer of GIC's stake in the four insurers to the Government.

As a preparatory exercise, the balance sheet cleaning up of the four companies, by making large provisions has already been completed.

The PSU insurers have also completed further two rounds of voluntary retirement schemes and brought down management expenses within the statutory levels.

Insurers had sought the additional capitalisation to improve their solvency to accelerate their growth and confront the competition from the private sector.

Private sector general insurers have already taken a share of 15 per cent by cutting into the profitable lines of the four insurers.

The sources said that the additional capitalisation was also required to improve the retention capacities of the four companies. Retention implied that the PSU insurers would need to rely less on reinsurance arrangements, and, thereby, save on foreign exchange outflows.

The sources said that internal resources alone would not be sufficient if they were to sustain the growth in business. This included loss making tariff businesses such as motor insurance.

Therefore, some recapitalisation of the four companies would be required, they said

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