Capital woes may hit government's plans to list insurers
MUMBAI: The government's plan to list five general insurers may have hit an obstacle with the falling capital position of at least two companies -Oriental Insurance and National Insurance.
Oriental Insurance Company has a solvency margin of 1.1 times and National Insurance Company is at 1.26 times against the regulatory requirement of 1.5 times. Solvency margin is similar to capital adequacy of banks -it is the minimum excess on insurer's assets over its liabilities set by the regulators.
Insurance Regulatory and Development Authority has prescribed that all insurance companies main tain 1.5 times surplus over liabilities at all times.“Solvency is a regulatory requirement and not a capital market requirement,“ said A Hoda, officiating chairman and managing director of United India Insurance. “Solvency for companies fell on higher provisions on third party motor pool. Fundamentals of companies are in place.“
Two other state-run general insurance companies -New India Assurance and United India -have solvency margins of 1.53 times and 2.3 times.
However, if fair value and real estate are used in calculating solvency margins, the two companies may not have any issues. National India has a fair value of Rs 6,000 crore and many real estate properties which are not used in calculating solvency. New India Assurance and General Insurance Corporation Re are expected to be the first two to hit the stock exchanges. “Valuation depends on market reputation,“ said Hoda.
The cabinet approved the listing of public sector general insurance companies through a combination of fresh issuance of shares or offer for sale. Post the issue, the government holding in these companies will come down to 75% from 100%.
After the cabinet note, companies have to comply with Sebi norms and get approval from IRDA. “General insurance companies need capital to fund their business growth requirement,“ said G Srinivasan, chairman and managing director New India Assurance. General insurance industry is growing at 18%-20% on a year-on-year basis.
Oriental Insurance Company has a solvency margin of 1.1 times and National Insurance Company is at 1.26 times against the regulatory requirement of 1.5 times. Solvency margin is similar to capital adequacy of banks -it is the minimum excess on insurer's assets over its liabilities set by the regulators.
Insurance Regulatory and Development Authority has prescribed that all insurance companies main tain 1.5 times surplus over liabilities at all times.“Solvency is a regulatory requirement and not a capital market requirement,“ said A Hoda, officiating chairman and managing director of United India Insurance. “Solvency for companies fell on higher provisions on third party motor pool. Fundamentals of companies are in place.“
Two other state-run general insurance companies -New India Assurance and United India -have solvency margins of 1.53 times and 2.3 times.
However, if fair value and real estate are used in calculating solvency margins, the two companies may not have any issues. National India has a fair value of Rs 6,000 crore and many real estate properties which are not used in calculating solvency. New India Assurance and General Insurance Corporation Re are expected to be the first two to hit the stock exchanges. “Valuation depends on market reputation,“ said Hoda.
The cabinet approved the listing of public sector general insurance companies through a combination of fresh issuance of shares or offer for sale. Post the issue, the government holding in these companies will come down to 75% from 100%.
After the cabinet note, companies have to comply with Sebi norms and get approval from IRDA. “General insurance companies need capital to fund their business growth requirement,“ said G Srinivasan, chairman and managing director New India Assurance. General insurance industry is growing at 18%-20% on a year-on-year basis.
