State-run New India Assurance Company's Rs 9,600-crore initial public offer is set to open for subscription on Wednesday, with a price band of Rs 770-800 per share.
Here are 10 things one should know before investing:-
Incorporated in 1919, New India Assurance Company (NIA) is the largest general insurance company in India in terms of net worth, domestic gross direct premium, profit after tax and number of branches for the fiscal year ended March 2017, as per CRISIL Report.
As of March 2017, NIA had issued 27.10 million policies across all product segments, which is the highest among all general insurance companies in India, as per CRISIL Report.
NIA's insurance products can be broadly categorised into product verticals viz. fire insurance; marine insurance, motor insurance, crop insurance, health insurance and other insurance products.
In FY13, FY14, FY15, FY16 and FY17, despite increasing competition from private players, NIA has maintained market leadership in the general insurance industry in India and it was the leader in all segments except crop insurance, as per CRISIL Report.
It has three subsidiaries - The New India Assurance Company (Trinidad & Tobago); The New India Assurance Company (Sierra Leone); and Prestige Assurance Plc.
About the Public Issue
The 12-crore equity shares' initial public offer consists of fresh issue of up to 2.4 crore shares and offer for sale of up to 9.6 crore shares by the government.
The offer also includes a reservation of up to 36 lakh equity shares for subscription by eligible employees.
Employees and retail investors will get shares at a discount of Rs 30 per share on the offer price.
Bids can be made for minimum of 18 equity shares and in multiples of 18 shares thereafter. The issue will close on November 3.
The offer will constitute 14.56 percent of the post-offer paid-up equity share capital of the company.
Equity shares are proposed to be listed on the National Stock Exchange of India and BSE Limited.
Kotak Mahindra Capital Company, Axis Capital, IDFC Bank, Nomura Financial Advisory and Securities (India) and YES Securities (India) are the book running lead managers to the offer.
Objects of the Issue
Net proceeds of the fresh issue would be utilised towards meeting future capital requirements which are expected to arise from the growth and expansion of business; improving solvency margin and consequently solvency ratio of the company.
> As of FY17, NIA was the largest general insurance company in India in terms of net worth, domestic gross direct premium, profit after tax and number of branches, as per CRISIL Report.
Market share (in terms of overall gross premium) and market position in product segments:-
> It is also the only Indian general insurer with a sizeable international presence, as per CRISIL Report. It commenced international operations in 1920.
> NIA believes high levels of service quality, focus on customer satisfaction, sophisticated underwriting, product development and claims management capability have enabled it to develop a sustainable business model.
> It provides comprehensive range of insurance products and has product innovation capability.
> It has developed an expansive multi-channel distribution network that includes individual and corporate agents, brokers, bancassurance partners and other intermediaries, as well as direct sales and sales through online channels.
> It has an experienced senior management team
> It has robust IT infrastructure and financial position.
NIA's gross written premium increased at a CAGR of 15.18 percent from Rs 13,200.18 crore in FY13 to Rs 23,230.5 crore in FY17.
As of FY17, the company had an investment portfolio including cash and bank balances of Rs 60,056.41 crore, which increased at a CAGR of 11.32 percent between FY13 and FY17. Solvency ratio as of March 2017 and as of June 2017 was 2.22 and 2.27, respectively, compared to the IRDAI specified control level of 1.5.
During FY13-17, its net premium earned increased at a 16.5 percent CAGR to Rs 17,675 crore while the company has posted losses at operational level and its profits had been declining for last three fiscal years. Net profit for FY17 stood at Rs 839.86 crore, lower by 10 percent compared with Rs 930.35 crore in FY16.
Its return on average equity ratio and solvency ratio has been falling.
Promoter is the President of India, acting through the Ministry of Finance. Promoter currently holds, directly and indirectly (through its nominees), 100 percent of the pre-offer paid-up equity share capital of the company.
Post the offer, promoter will hold around 85.44 percent of the post-offer paid-up equity.
FY17 Market Share of top 10 players
Board of Directors:-
Management Organisation Structure:-
In FY16 and FY17, New India Assurance paid dividends (including dividend distribution tax) of Rs 359.98 crore and Rs 301.98 crore, respectively.
Risks and Concerns
Here are some risks and concerns highlighted by brokerage houses:-
> Catastrophic events, including natural disasters, could result in significant claims which may impact the financial condition of NIA.
> Any termination or adverse change in their relationship with the agents, brokers etc may impact the revenue of the company.
> Though NIA is market leader in terms of gross direct premium but it reports loss in the insurance business (unprofitable underwriting).
> NIA is subject to a comprehensive and evolving regulatory framework in a highly regulated industry that affects the flexibility of its operations and increases compliance costs.
> An inability to maintain market share or effectively address the requirements of specific customer segments by maintaining a strategic portfolio of insurance products may materially and adversely affect the business operations and prospects, and consequently the financial condition and results of operations.
> Decline in market value of investments in debt and equity may negatively affect the company’s total income.
> An inability to effectively compete in the highly competitive insurance industry could have a material adverse effect on the business, results of operations and financial condition.
> As a significant portion of its business is generated from relatively few regions, NIA is susceptible to economic and other trends and developments, including adverse weather conditions, in these areas.
> Changes in market interest rates may have a material adverse effect on the business and results of operations.
> Adverse macroeconomic conditions and financial markets in India and globally may have a material adverse effect on the business, results of operations and financial condition.
> There are certain risks related to crop/weather insurance offering that could have a material adverse effect on business.
> NIA cedes a significant percentage of its reinsurance to GIC Re. Any adverse change in its relationship with GIC Re could result in a material adverse effect on its business and results of operations.