Will investors have an appetite for insurers?

After years of handwringing, staterun insurance companies will hit the bourses this year with the Cabinet Committee on Economic Affairs approving public listing of all five government-owned general in

After years of handwringing, staterun insurance companies will hit the bourses this year with the Cabinet Committee on Economic Affairs approving public listing of all five government-owned general insurers on Wednesday. It was first proposed in 2007, but was deferred citing lack of readiness and changing government agenda. As per the regulator IRDAI, life and general insurers must have completed ten and eight years of operations respectively to sell shares.

Of the 55 insurers registered with IRDAI, over 30 fulfil the norms but only one—ICICI Prudential Life Insurance— went public last September. Considering the poor response, the IRDAI, last August, even toyed with the idea of mandatory listing. But now, the Cabinet has set the ball rolling proceeding with the IPO plans and private players may follow suit. The market has long called for insurers’ listing to increase transparency and accountability.

It will also help unlock value for the government, which often misses its disinvestment target. The Indian life insurance industry is valued at $50 billion, while general insurance is worth $13 billion, according to KPMG. As per estimates, the industry could raise as much as $5 billion. But valuations for general insurers are likely to be lower than life insurers, as claims are substantially higher than premiums collected in key segments like motor insurance. It is imperative that companies fix this at once.

The insurance industry is different, and comes with unique risks. For instance, financial statements of insurers are significantly different, as they prepare two types of income accounts—policy holder’s account (revenue account) and shareholder’s account (profit and loss account). On the other hand, Sebi regulations are general in nature and uniformly applicable. Insurance is all about weighing up risks and making a measured judgement, so it may be a while before investors’ understanding and exposure in Indian insurance IPOs become robust.

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The New Indian Express
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