An IPO is the next logical process to unlock real capital, if the insurer has a strong set of financials
The rise in demand for capital within the insurance industry, especially life insurance, has led to a flurry of initial public offerings (IPOs) in the Indian market. After five insurance IPOs in FY18, there are two more in the offing.
Around Rs 65,000 crore of capital is currently deployed in the insurance sector. Of this, about Rs 38,000 crore is deployed in life insurance while the rest of the capital is deployed in general insurance.
The actual need? At least Rs 1 lakh crore.
There was an expectation that the passage of the Insurance Laws (Amendment) Act in 2015 would lead to an inflow of Rs 35,000 crore into the industry once foreign direct investment (FDI) in the sector would be increased to 49 percent from 26 percent. However, instead of capital coming to the industry, most of the FDI hike proved to be an exchange of funds between the shareholders of the companies.
The pain-point was the Indian management control provision added in the Insurance Act that said that even if a foreign partner held 49 percent stake, they would still have to get a nod from Indian shareholders for all strategic decisions.
Several insurance companies, including ICICI Prudential Life Insurance, SBI Life Insurance, ICICI Lombard General Insurance, HDFC Life Insurance, New India Assurance and General Insurance Corporation of India (GIC Re), are already listed on the exchanges.
PNB MetLife Insurance has filed its draft papers with the Securities and Exchange Board of India (SEBI) for an IPO. Similarly, SBI General Insurance is likely to be listed on the stock markets in FY20.
The government, on the other hand, is trying to divest its stake in state-owned general insurance companies through a merger and a subsequent listing. While the process has been postponed to FY20 for now, their idea is to unlock some capital through this process.
Promoters of insurance companies, especially banks, have been on the lookout to sell stake in non-core assets. Banks, like SBI, Allahabad Bank, Punjab National Bank, among several others, have been looking to reduce their stakes in some of the insurance joint ventures. An IPO is the next logical process to unlock real capital, if the insurer has a strong set of financials.When the insurance sector was privatised in 2000, the idea of the insurance regulator was to begin listing all eligible candidates from 2010 onwards. After stiff opposition from the industry for an IRDAI proposal to make listing mandatory, insurers are taking a lead feeling the heat on the capital front.