Notably, analysts have pointed out that the large issue size and high price of public sector general insurance firms have been key reasons for poor response from retail investors. Due to high prices, retail investors did not foresee any listing gains on the issues, according to analysts. Also, combined ratio, a key measure of financial health of insurance firms, calculated by diving the sum of claim-related losses and general business costs by the earned premiums over a period, has been higher for public sector firms.
For New India Assurance, the IPO price band was Rs 770-800, while for GIC it was Rs 855-Rs 912, against Rs 651-661 per equity share for private sector insurers ICICI Lombard, which too went for an IPO recently. Retail subscription for New India Assurance was around 11 per cent, while for GIC it was around 60 per cent. For ICICI Lombard, the retail subscription was around 1.2 times.
"A lot of IPOs got bunched up in the last few weeks, which could have impacted the outcome. Also the issue size was quite big and for over subscription, one needs to have substantially high amount of subscription. On the other hand, for smaller issue sizes, the pent-up demand is higher. Since the prices were high, retail investors did not see any listing gains. On the other hand, institutional investors, who typically don't go for listing gains, have seen obvious long term returns in the issues," said Karthik Srinivasan, Senior Vice President, ICRA.
"The valuation for both GIC and New India Assurance was on a higher side, while the operational parameters are that as strong as private sector peers. Globally, the combined ratio for general insurance sector is around 103-104 per cent, whereas for public sector general insurers in India it is around 115 per cent on an average. Also, the issue size itself was so big that retail investors did not see any gains,' said Jaikishan J Parmar, Research Analyst, Angel Broking.
Although sitting on huge pool on investments, the public sector general insurance companies
have been struggling to make profits out of core business. For example, despite being one of the profitable insurance companies, New India Assurance's combined ratio has consistently remained high for last five years at more than 115 per cent, according to a report by Angel Broking. In FY2017, the company reported combined ratio of about 120 per cent, the report adds. However, in the last quarter, the company's combined ratio improved to 112.57 per cent. National Insurance's combined ratio stood at around 118 per cent at the end of first quarter of the present financial year. For Oriental Insurance, the ratio at the end of the first quarter of the present financial year was 110 per cent. United India's combined ratio was about 111.82 per cent in Q1 of FY18. In contrast, ICICI Lombard's combined ratio stood at 102.8 per cent in the last quarter.
Public sector general insurance firms are also losing their market to private sector firm. The market share of public sector firms dropped from 53.32 per cent in the first quarter of FY17, to 50.67 per cent in the first quarter in this financial year. At the same time, the share of private sector rose to 49.33 percent in the first quarter of FY18 from 46.68 percent a year ago.
"More than capital, the public sector insurance firms need to improve on their operational methodologies, which they have been trying to do in the last six months," said an official of a public sector general insurance firm.