Kolkata: A fresh set of reforms for unlocking the value of the nationalised insurance companies may be on the way, with the government considering changes in the General Insurance Business (Nationalisation) Act (GIBNA).
If this happens, the four nationalised companies — New India Assurance, National Insurance Company, Oriental Insurance Company and United India Insurance — may be allowed to tap the market for additional funds.
Although the four nationalised companies command 60% of the business share (this has come down over the years with private players eating into the market share), a deregulated tariff environment and fierce competition will eventually point to the need for larger funds in the future.
Industry sources said that subject to amendments in GIBNA, insurers might get to raise other forms of capital, expand their branch network and enter into various strategic partnerships.
At present, the government holds the entire paid-up capital of the companies, amounting to Rs 550 crore. Even a small dilution of 5-6% could bring about sufficient capital.An official at one PSU general insurer told DNA Money that it is a tough market and management expenses are on the higher side. “But we have family silver in the form of huge reserves. If changes in the Act are brought about, a lot can be done with shareholders’ funds. Right now we cannot use shareholders’ funds for various reasons.”
One source told DNA Money that “much would also depend on the profitability and performance of the company.” Three consecutive years of underwriting profits may also be one of the conditions for a public offering, the source said.
The four PSU general insurers and 10 private players have been in a fierce fight for market share, after the detariff regime came into effect, which saw a sharp drop in premiums as the companies fought for market share.
Last year, the insurance regulator (Irda) asked general insurance companies to maintain a solvency ratio of 150% and report their position every quarter. The general insurance industry which had four nationalised and ten private players have been extremely competitive, especially with the detariff regime or market driven rates being introduced since January 2007. Further deregulation is expected in the coming months.
And while increasing the cap on foreign investment in the sector remains a crucial issue for the government, a small dilution of stake in the nationalised majors could change the dynamics of market.
If this happens, the four nationalised companies — New India Assurance, National Insurance Company, Oriental Insurance Company and United India Insurance — may be allowed to tap the market for additional funds.
Although the four nationalised companies command 60% of the business share (this has come down over the years with private players eating into the market share), a deregulated tariff environment and fierce competition will eventually point to the need for larger funds in the future.
Industry sources said that subject to amendments in GIBNA, insurers might get to raise other forms of capital, expand their branch network and enter into various strategic partnerships.
At present, the government holds the entire paid-up capital of the companies, amounting to Rs 550 crore. Even a small dilution of 5-6% could bring about sufficient capital.An official at one PSU general insurer told DNA Money that it is a tough market and management expenses are on the higher side. “But we have family silver in the form of huge reserves. If changes in the Act are brought about, a lot can be done with shareholders’ funds. Right now we cannot use shareholders’ funds for various reasons.”
One source told DNA Money that “much would also depend on the profitability and performance of the company.” Three consecutive years of underwriting profits may also be one of the conditions for a public offering, the source said.
The four PSU general insurers and 10 private players have been in a fierce fight for market share, after the detariff regime came into effect, which saw a sharp drop in premiums as the companies fought for market share.
Last year, the insurance regulator (Irda) asked general insurance companies to maintain a solvency ratio of 150% and report their position every quarter. The general insurance industry which had four nationalised and ten private players have been extremely competitive, especially with the detariff regime or market driven rates being introduced since January 2007. Further deregulation is expected in the coming months.
And while increasing the cap on foreign investment in the sector remains a crucial issue for the government, a small dilution of stake in the nationalised majors could change the dynamics of market.
Source: DNA
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