India's largest general insurer, the government-owned New India Assurance, has filed a draft red herring prospectus with the Securities and Exchange Board of India for a public listing.
The IPO comprises a fresh issue of 24 million shares by the company, and the sale of 96 million shares by the government. The flotation exercise is expected to raise around US$1.5 billion.
The public issue will result in a 14.56% stake dilution for the government in the general insurance firm. The government will have a grace period of three years from the date of listing to meet the minimum public shareholding requirement of at least 25% shares held by the public.
The shares will be listed on the Bombay Stock Exchange and the National Stock Exchange of India.
New India's IPO application follows close on the heels of that by state-owned GIC Re which on 7 August filed draft red herring prospectus.
The two government-owned insurance giants are the first among state-owned insurers to launch an IPO.
Currently, ICICI Prudential Life is the only listed insurer in the country. Other privately held insurers which are planning to float their shares include SBI Life, ICICI Lombard General Insurance and HDFC Standard Life Insurance.
New India, which was incorporated in 1919, has a distribution network across India that includes 68,389 individual agents and 16 corporate agents, bancassurance arrangements with 25 banks in India and a large number of dealership arrangements .
As at 30 June 2017, the company had 2,452 offices in India across 29 states and seven union territories. Besides, it has international operations across 28 countries, through a number of branches, agency offices, subsidiaries and associated companies.
From 1 April 2011 to 30 March 2017, the company's market share in terms of gross direct premium rose from 14.7% to 15.0%.
New India reported a consolidated net profit of INR8,393.6 million for the financial year ended 31 March 2017 on total net premiums of INR176,747.7 million.
New India says in the prospectus that with economic growth gradually picking up and structural drivers in place (rise in healthcare costs, growth in retail auto sector, agricultural reforms and schemes), it expects the growth trajectory of the general insurance sector to remain strong in the next five years.
An analysis of various general insurance product lines indicates significant potential for growth across the board as penetration in India is much lower than global benchmarks. For example, on purchasing a two-wheeler, buying an insurance policy is mandatory till the time vehicle is on the road, but many two-wheeler owners do not renew their policy after the first year. Consequently, insurance penetration rates on two-wheelers on road is estimated to be only 25%, much lower than the global benchmark of over 90%. In the case of cars more than 3 years old as well, penetration rates are estimated at around 60% vis-à-vis the global benchmark of 90%. Furthermore, as of FY2016, only 34% of Indians have a health insurance policy, either provided by the private sector or government schemes. The scenario is similar when one looks at the corporate-focused lines such as engineering, fire, and marine insurance, with penetration estimated to be less than 1% of industrial GDP.
New India also cites various other factors which would contribute to the growth of the general insurance industry in the country. These include: GDP growth, rising incomes, increase in new vehicle sales, demand for crop insurance, increasing cost of healthcare, increasing need to cover natural catastrophes, increased online sales and supportive regulations.