“Insurance is a complex sector and not many retail (small) investors understand it. However, having said that, we would definitely incorporate the learnings from the IPOs of NIA and GIC in our offering. We will sit with their analysts and discuss,” said K Sanath Kumar, chairman of National Insurance.
According to sources, National Insurance is looking to raise Rs 4,000-5,000 crore. Kumar didn't comment on this.
Analysts said large issue size and high price were key reasons for the poor response of IPOs of other public sector insurance firms. Due to the high share price, retail investors did not foresee any listing gain. Also, the combined ratio, a key measure of financial health for insurers, 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 NIA, the IPO price band was Rs 770-800; for GIC, Rs 855-912. Against this, it was Rs 651-661 a share for private sector ICICI Lombard, which also went for an IPO recently. Retail subscription for NIA was around 11 per cent; for GIC, 60 per cent. For ICICI Lombard, it was around 1.2 times the number of shares on offer in the segment.
“A lot of IPOs got bunched in the past few weeks, which could have also impacted the outcome. And, the issue size was quite big; for over-subscription, one needs to have a substantially high amount of subscription. For smaller issue sizes, the pent demand is higher. Since the prices were high, retail investors did not see any listing gains. On the other hand, institutional investors, which typically don't go for listing gains, have seen obvious long-term returns in the issues,” said Karthik Srinivasan, senior vice-president at ratings agency ICRA.
“The valuation for both GIC and NIA was on the higher side, while the operational parameters are as strong as private sector peers. Globally, the combined ratio for the general insurance sector is 103-104 per cent; 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, analyst at Angel Broking.
Although sitting on a huge pool of investments, public sector general insurance companies have been struggling to make profits out of the core business. For example, despite being one of the profitable ones, NIA's combined ratio has consistently remained high for five years, at more than 115 per cent, according to a report by Angel Broking. In 2016-17, the company reported a combined ratio of about 120 per cent, the report adds, though this had improved in the final quarter to 112.57 per cent. It was 118 per cent at the end of the first quarter of the present financial year.
For Oriental Insurance, the ratio at the end of the first quarter of this financial year was 110 per cent. United India's was 111.8 per cent. In contrast, ICICI Lombard's combined ratio was 102.8 per cent in the last quarter of FY17.
Public sector general insurance firms are also losing share to private competitors. Their combined market share was 53.3 per cent in the first quarter of FY17 and 50.7 per cent in the first quarter of this financial year. That of the private sector rose to 49.3 per cent in the first quarter of FY18, from 46.7 per cent a year before.
"More than capital, public sector insurance firms need to improve on operational methods, which they have been trying to do in the past six months," said an official at one of these.