General Insurance Corporation IPO: Here’s All You Need To Know

India’s only reinsurer General Insurance Corporation of India will launch what will be the country’s third largest initial public offering today as the government begins to pare stake in state-run insurers.

GIC will sell shares at Rs 855-912 apiece to raise Rs 11,370 crore in the three-day offer, valuing the company at Rs 80,000 crore at the upper end. It will offload close to 12.47 crore shares through a fresh issue and an offer for sale by the government. Retail investors and employees will get a Rs 45 discount per share.

Citi, Axis Capital, Deutsche Bank, HSBC and Kotak Investment Banking are the book-runners for the offer.

Use Of Proceeds

The government’s stake will fall by 14.22 percent after the IPO, helping it mop up Rs 9,800 crore as part of its efforts to meet the Rs 72,000-crore divestment for the year. The company will use the proceeds from issuing new stock to augment its capital base and general corporate purposes, according to its red herring prospectus.

Business

GIC accounted for about 60 percent of the premiums ceded by Indian insurers to reinsurers in the year to March 2017.

Agriculture contributes the most to its business, followed by fire and motor segment, of which 67.3 percent is sourced directly and the rest through brokers. GIC underwrites reinsurance for every non-life and more than half of the life insurance companies in India. Its top 10 clients contributed 56.33 percent of consolidated gross premium in the last financial year.

GIC operates across 161 countries. It was ranked the 12th largest global reinsurer by gross premiums accepted in 2016 and the third largest in Asia in 2015, according to Crisil Research.

A reinsurance contract is of two types: treaties and facultative reinsurance. A treaty reinsurance covers the entire portfolio, while facultative separately covers and underwrites each risk. GIC Re proportionally shares 82.8 percent of the premium and losses on treaty reinsurance.

Financial Highlights

• GIC gross premium book stood at Rs 33,741 crore as of March, of which 30 percent is contributed by overseas business. It clocked a compounded annual growth rate of 48.65 percent in the past three years. Net profit rose 10 percent in the year ended March.
• The company had an investment book of Rs 69,134 crore by market value for the year ended March. Of which, 55 percent is invested in equities and the rest in centre and state-government securities.
• The company has a price-to-book value of 1.5-1.6 times, and the price-to-earnings multiple of 24 times compared to the global average of 45 to 50 times
• GIC paid a dividend of Rs 1,002 crore to the government in the year ended March.
• The combined ratio—that factors in losses paid and expenses associated with business—improved from 100.2 percent in March to 98.4 percent in June. A number above 100 indicates that an insurer does not make any money from premium and relies on investment income.

International Peers

When compared to global peers, it had the lowest net expense ratio of 18.53 percent and highest net investment yield of 12.3 percent as of March.

Future Strategy

• The company aims to expand presence globally.
• Focus on improving profitability by reducing the combined ratio.
• Plans to acquire a reinsurance company that is a member of Lloyd’s of London in the next one year.

Brokerage View

IIFL

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• Global expansion and better pricing in the domestic market should improve the combined ratio in the medium term.
• Gross premium growth to remain steady in the coming years.

ICICI Securities

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• A significant global player with growing international presence.
• Healthy premium growth and return ratios.

Prabhudas Lilladher

• Recommends ‘Subscribe’ (long-term perspective).
• Agriculture insurance coupled with technology platform will allow it to operate at lower costs.
• Expect return on equity of 15-18 percent on high investment income and better operating efficiency.

Angel Broking

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• Agriculture gross premium has grown aggressively over the last three years, largely due to the initiatives taken by the government.
• Well-managed investment book, leadership position and a robust balance sheet key positives.