Government will divest 25 per cent stake in five insurance firms

New Delhi: The Cabinet on Wednesday approved plans to divest the government’s 25 per cent stake in each of the five state-run general insurance companies by listing them on stock exchange.

The move is expected to unlock a huge amount of money for the government and may also foreshadow a listing for the Life Insurance Corporation of India (LIC), a public sector company that’s potentially the country’s most valuable company.

Finance minister Arun Jaitley, announcing the Cabinet Committee on Economic Affairs’ (CCEA) decision, said the government’s holdings in these companies will be brought down to 75 per cent from 100 per cent through the offer of shares in one or more tranches.

The five firms that will be listed include four public sector general insurance companies — New India Assurance Company Ltd, National Insurance Company Ltd, Oriental Insurance Co Ltd, United India Insurance Co Ltd — and one re-insurance firm, General Insurance Corporation of India.

The four general insurance companies have a market share of 47.63 per cent. The listing is expected to help these companies raise resources from the capital market to meet fund requirements.

Listing of these companies, government said, will lead to improved corporate governance and risk management practices, meaning improved efficiency. There will also be greater focus on growth and earnings, they said.

In last year’s Budget, the government had announced that it would list general insurance companies to improve transparency and accountability.

“As and when these general insurance companies go for an IPO and get listed, apart from helping them meet their capital requirements from sources other than the government, it will also bring greater transparency and enhance governance standards. As these companies become accountable to public shareholders, their performance parameters will be subject to greater scrutiny, which in turn may force them to become more efficient and competitive,” said Sai Venkateshwaran, partner and head (accounting advisory services), KPMG India.

He said that the approval has come at a time when the primary markets have shown great interest in IPOs from financial services sectors.

The insurance sector in India comprises 24 companies operating in the life insurance business and 29 non-life insurers. LIC is the biggest player in the life insurance business.

In financial year 2015-16, India’s life insurance industry recorded new premium income of Rs 1.38 trillion, a growth rate of 22.5 per cent. The general insurance industry recorded 12 per cent growth in premiums underwritten.

India’s life insurance sector is the biggest in the world with about 360 million policies which are expected to increase between 12-15 per cent over the next five years. The country’s insurance market is expected to quadruple in size over the next 10 years, while the life insurance market is slated to cross $160 billion.

During the process of disinvestment, existing rules and regulations of Securities and Exchange Board of India (Sebi) and Insurance Regulatory and Development Authority of India (IRDAI) will be followed.

Listing on the stock exchange necessitates compliance with a number of disclosures and accounting requirements of SEBI, which acts as an additional oversight mechanism. The disclosures bring about transparency and equity in the companies functioning.