Nearly 200 years after its birth, India’s insurance industry is opening up to the stock market

Time to list.
Time to list.
Image: AP Photo/Rafiq Maqbool
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The 200-year-old Indian insurance industry is coming of age, finally, as a clutch of firms prepares to list on the country’s bourses.

Out of the 24 life insurance31 general insurance, and two re-insurance companies in India, only one is listed on the stock exchanges. However, this year, a spate of initial public offerings (IPO) is expected from the sector, with at least six players in advanced stages of hitting the bourses.

Listing augurs well for India’s financial sector. After all, if Life Insurance Corporation of India (LIC), the country’s largest insurance firm, was to hit the bourse, it would have been India’s most valuable stock, believes finance minister Arun Jaitley. At the end of March 2017, LIC had a market share of 76% in terms of the number of policies.

The insurance IPO market may be taking off at a time when the insurance sector itself is poised for a leap. India, along with China, is expected to be jthe fastest-growing market for life insurance, as per a report by global reinsurer Swiss Re. Considering that the insurance density or the premium paid per capita in India is still low at $59.70, compared to Asia’s average of $343.10 and a global average of $638.30, there is considerable room to grow.

The long-run-up to listing

Though the first Indian insurance firm was set up in 1818, the industry remained largely unregulated till the late 1990s.

In April 2000, the Insurance Regulatory and Development Authority of India (IRDAI) was set up to oversee the sector. In August that year, IRDAI allowed foreign firms to own 26% stake in Indian companies. Since then, several private firms have entered the market, partnering with foreign players and Indian banks, broadening the market in the process. Since 2015, foreign companies have been allowed to increase their stake to 49%.

But listing was still not on the cards. Experts explain that as insurance is a long-gestation business, it would not have made sense for most of these players to list in the first decade of their operations. “Initially, insurance is a high-investment and high-loss business and, therefore, if they list during such a phase, share prices would keep falling and, therefore, it doesn’t make much sense,” said Joydeep Roy, partner—advisory practices, PwC India, (a partner at PwC) and head of the insurance vertical.

Besides, there were no guidelines for companies to list. It was only in last June that IRDAI came up with draft guidelines. Since then, there’s been a flurry of activities in the insurance IPO space.

In September 2016, ICICI Prudential Life Insurance hit the capital markets, becoming the first company in India to do so. Someone who had invested in that IPO when it debuted would now be sitting on a gain of over 40%. Little wonder then that a few months later, several others were in the queue to go public.

For instance, SBI Life Insurance, the subsidiary of India’s largest lender, the State Bank of India, and  ICICI Lombard General Insurance, a subsidiary of ICICI Bank, have filed their draft red herring prospectus (DRHP) with the capital market regulator. HDFC Life, a subsidiary of the country’s largest housing finance company, HDFC, has filed for an application with IRDAI seeking approval for its IPO. HDFC Life is expected to file its DRHP in August. New India Assurance, the largest general insurer in the country, is expected to come out with its IPO in December 2017. GIC Re has already appointed a merchant banker to manage its IPO which is expected soon. Meanwhile, others such as Reliance General Insurance, too, have announced their plans to list.

The listing advantage

Insurance being a-capital-intensive business requires significant resources. The sector in India, with a prolonged break-even period, has been struggling to raise capital. ”It will make it easier for these firms to raise capital by listing on the exchanges and raising funds instead of relying on capital received from the promoters that can vary (depending on various factors),” Kalpesh Mehta, partner at auditing firm Deloitte Haskins & Sells explained.

Besides, listing is key to good corporate governance. After all, these are public interest entities and deal with people’s money, experts say. “Therefore, it makes sense that such companies should be public-owned rather than promoter-owned. Even globally, that is the framework,” added Mehta.

Hitting the capital market increases transparency as the financial accounts and reports have to be standard, which results in better disclosures, explained Roy of PwC India. It will also reflect the company’s performance, which is a sum total of various factors such as growth, innovation, managing frauds, customer service, regulatory compliance etc. “This (the firm’s performance) becomes a tad difficult to analyse otherwise for the common investor,” Roy added.

Also, listing helps burnish the brand image. “The profile of the insurance industry is not very well known among the people in this country,” said G Srinivasan, chairman & managing director, New India Assurance, in an interview to Moneycontrol. Under such circumstances, a negative image is the last thing companies would want.

In the past few years, firms have already come under fire for mis-selling insurance policies or for rejecting claims on inadequate grounds. Listing may help address these concerns as companies are likely to become more sensitive about their image.

If ICICI Prudential’s stock performance is any indication, it’s windfall time for these players.