The Hindu Business Line : General insurers may be allowed to tap capital market this fiscal

Bangalore, Aug. 20 The Initial Public Offering (IPO) of Bharat Sanchar Nigam Ltd (BSNL) is expected to take precedence over the capital raising proposals of the public sector general insurance companies.

Sources said that the Government was not opposed to the capital raising plans of the four general insurance companies — New India Assurance Company Ltd, National Insurance Company Ltd, Oriental Insurance Company Ltd and United India Insurance Company Ltd.

The plans are now awaiting amendments to the General Insurance Business (Nationalisation) Act of 1972 and the Insurance Act of 1938.

But clearance for the capital raising efforts is likely only after completion of the Rs 42,000-crore BSNL’s mega IPO. The sources said that the Government’s efforts were to push through with the 10 per cent divestment in BSNL. The BSNL focus was largely driven by the ticket size, the sources said.

The large ticket size would help the Government raise large resources and partly help in complying with the fiscal deficit targets for the current year, estimated at 2.5 per cent of the Gross Domestic Product.

Of smaller size

Raising of resources by general insurers through a combination of capital restructuring and IPOs would, however, be of far smaller magnitude.

The smaller ticket size notwithstanding, the sources said, indications are that the insurers would be permitted to access the domestic capital markets this financial year itself. This was particularly in view of general insurers’ urgency in capital requirements for growing their business.

Besides, general insurers also have pressed the need to reduce reliance on cross border risk capacities for conforming to regulatory solvency margins.

Solvency margin

At present, the regulator’s prescribed solvency margin is 150 per cent. Solvency margin implies the excess of capital and value of assets over the insured liabilities. At present, the PSU general insurers have solvency ratios in excess of two times over their insured liabilities.

However, this was largely in view of the low insurance penetration. The general insurance market is currently about Rs 35,000 crore or about 0.65 per cent of the Gross Domestic Product.

The Asian average is about 3 per cent of the GDP. Stepping it up to Asian levels, the sources said, would require capital infusion.

The combined net worth (paid-up equity + general reserves) of the four PSU insurers is currently about Rs 13,000 crore.

Besides, the sources said, valuation exercises for the four companies are yet to begin. New India Assurance, Oriental Insurance and United India Insurance have hired the Boston Consulting Group as external consultants. National Insurance has appointed PwC as its consultant.

The sources said that the consultants would not be valuing the companies.

But the process for beginning a valuation would be in place even as the amendments to the statutes are completed over the next few months, the sources added.

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