National Insurance Company IPO may be pushed to end FY18 on capital woes

    The state-run Oriental Insurance Company and National Insurance Company at 1.1 times and 1.26 times are woefully short of the IRDA’s solvency ratio requirement of 1.5 times.

    National Insurance Company Chairman and Managing Director K Sanath Kumar said on Thursday that the company will hit the IPO market only after complying with all the regulatory requirements including its solvency ratio, which is at present lower than the mandate, implying that its listing may take place only towards the end of the next financial year or even after that.

    “Obviously we will hit the market after the 1.5 times capital adequacy is met, but that is not too far,” K Sanath Kumar told CNBC TV18 in an interview.

    Solvency ratio is the proportion of capital available with an insurer against its insured liabilities. IRDA (Insurance Regulatory Development Authority) has set the solvency ratio requirement for insurers at 1.5, meaning that the insurance firms are required to hold in capital 1.5 times the amount of insurance liabilities at all times.

    However, the state-run Oriental Insurance Company and National Insurance Company are woefully short of the requirement at 1.1 times and 1.26 times, respectively. The other two state-run general insurers – New India Assurance and United India Assurance – meet the requirement at present with their respective solvency ratios at 2.3 and 1.53.

    “We are hopeful of hitting the market in another 8-9 months after meeting all the regulatory requirements, hopefully by first half of the next fiscal,” K Sanath Kumar told CNBC TV18.

    Earlier this year, the Union Cabinet approved listing of five state-run general insurance companies, clearing way for the government to further accelerate its plans to raise money through disinvestment of equity stakes in PSUs (public sector undertakings).

    New India Assurance Chairman and Managing Director G Srinivasan has already said his company will complete its IPO (initial public offering) in the next 6-8 months and may possibly be among the first one to list.

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    The government holds entire 100% stake in all the five state-run general insurance companies, namely, New India Assurance Company, National Insurance Company, Oriental Insurance Company, United India Insurance Company and a re-insurance firm General Insurance Corp.

    Finance Minister Arun Jaitley said the government holding in these five companies will gradually fall to 75% post listing. This is in line with India’s listing requirements as mandated by the regulator.

    The listing may include both, issuing fresh shares with the proceeds going to the companies itself, and offer for sale of existing shares with the proceeds going to the seller – the government.

    Earlier last year in his budget proposals, Jaitley had said that the government proposed to undertake important banking sector reform and public listing of public sector general insurance entities. India has already raised the foreign direct investment limit in insurance sector to 49% from 26%.

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