Page 6 - Insurance Times January 2018 Sample

Higher crop insurance National Insurance may alter IPO strategy

coverage to inflate crop With two of the biggest initial public offering of public sector general insurance
firms getting tepid response from retail investors,
insurance subsidy bill National Insurance, which is planning to come out
The 2017-18 subsidy bill for the with its IPO in March-April 2018, is expected to
states and tweak its IPO strategy.
the Centre "Insurance is a very complex sector and not many
due to the retail investors understand it. However, having
Pradhan said that, we would definitely incorporate the learnings from the IPOs of New
Mantri India Assurance and General Insurance Corporation in our offering. We will sit
Fasal Bima with their analysts and discuss the strategies," said K Sanath Kumar chairman,
Yojna (PMFBY) is set to increase 10- National Insurance Company. According to sources, National Insurance had been
15 per cent as the scheme enters looking to raise about Rs 4,000-5,000 crore.
the second year. The farmers' cover-
age is expected to increase by 10-15 Notably, analysts have pointed out that the large issue size and high price of
per cent. In several states, insurers public sector general insurance firms have been key reasons for poor response
have raised premium quotations by from retail investors. Due to high prices, retail investors did not foresee any
listing gains on the issues, according to analysts.
five-seven per cent.
Also, combined ratio, a key measure of financial health of insurance firms, cal-
Reliance Capital arm, YES culated 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.
Bank in bancassurance
"A lot of IPOs got bunched up in the last few weeks, which could have impacted
agreement the outcome. Also the issue size was quite big and for over subscription, one
Reliance General Insurance, has needs to have substantially high amount of subscription. On the other hand, for
signed a smaller issue sizes, the pent-up demand is higher.
comprehen- Since the prices were high, retail investors did not see any listing gains. On the
sive banc-as- other hand, institutional investors, who typically don't go for listing gains, have
surance-cor- seen obvious long term returns in the issues," said Karthik Srinivasan, Senior Vice
porate President, ICRA.
agency
agreement with YES Bank. "The valuation for both GIC and New India Assurance was on a higher side, while
the operational parameters are that as strong as private sector peers. Globally,
YES Bank with its network of 1,040 the combined ratio for general insurance sector is around 103-104 per cent,
branches across all 29 States and whereas for public sector general insurers in India it is around 115 per cent on
seven Union Territories will enable an average. Also, the issue size itself was so big that retail investors did not see
Reliance General Insurance to reach any gains,' said Jaikishan J Parmar, Research Analyst, Angel Broking.
a large base of retail and MSME cli-
ents. Crop Insurance cover third largest segment
This is the first partnership signed by Crop insurance has emerged as the third-largest line of business for the insur-
YES Bank since the open-architec- ance industry, after motor and health, contrib-
ture norms under the corporate uting 16 per cent of its total general insurance
agency regulations were introduced premium of Rs.1,28,000 crore in FY17.
by the IRDAI in April 2016.
The share of crop insurance may increase fur-
Rana Kapoor, Managing Director, ther, as the Centre has increased the insurable
YES Bank, said in a statement: "With crop coverage from 30 per cent to 40 per cent
this alliance, we remain committed this year and is scheduled to increase it to 50 per cent in the next Budget.
to leveraging our pan-India branch However, while an increase in crop coverage and a subsequent rise in premium
network to capitalise on the im- is music to the industry's ears, assessing and settling claims is a highly complex
mense opportunities in the Indian and risky exercise. In the days of climate change, scattered rainfall and pest
bancassurance market." attacks, such risks are wider than in, say, motor insurance.

6 The Insurance Times, January 2018

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