Recently, a public interest litigation (PIL) was filed in the Bombay High Court against the government and six state-owned insurers, including Life Insurance Corporation (LIC), seeking divestment of their holdings in tobacco companies and also seeking to prevent these from making such investments.
The current round of stake sale by the general insurance firms comes as this was meant for increasing the book value of public sector general insurance companies. “This is purely a market operation, aimed at increasing our book value. We still retain a substantial number of ITC shares. We will do whatever the government directs us to do regarding investments in tobacco companies,” Kumar told Business Standard.
However, while public sector general insurance companies sold shares in ITC, LIC increased its stake from 14.32 per cent to 16.29 between the third and the fourth quarters of FY17, according to BSE.
Minister Arun Jaitley, in Budget 2016-17, had proposed listing all five public sector general insurers — GIC, New India Assurance, United India Insurance, Oriental Insurance and National Insurance.
The public sector general insurance companies are working on improving their financials ahead of listing, and this is the reason for the stake sale.
The investments of public sector general insurance companies stood at Rs 1,22,650 crore in the March quarter, almost double that of private sector companies, according to data from the Insurance Regulatory and Development Authority of India. However, the companies are not allowed to account these for calculating solvency ratios.
According to data available in the public domain, while National Insurance and Oriental Insurance have solvency ratio below the regulatory requirement of 1.50 per cent, United India and Oriental Insurance reported losses recently. New India Assurance and National Insurance, too, saw a decline in profitability.