General insurers sell ITC stock to hike book value before listing

Ahead of listing, public sector general insurance companies have reduced their stakes in one of their most valued blue-chip company, ITC Ltd.

New India Assurance’s shareholding in ITC fell from 1.75 per cent in the December quarter to 1.70 per cent in the March quarter of 2016-17, according to the BSE. Oriental Insurance’s stake fell from 1.46 per cent to 1.40 per cent. The stake of General Insurance Corporation of India (GIC) in ITC came down from 1.77 per cent to 1.76 per cent between the third and the fourth quarters of the last financial year.

Kolkata-based National Insurance which, according to the BSE, held 1.21 per cent in ITC at the end of third quarter of the last financial year, too, sold a part of its stake in the past few months, while retaining a part of its shareholding, said Sanath Kumar, chairman and managing director.

Recently, a public interest litigation (PIL) was filed in the Bombay High Court against the government and six state-owned insurers, including Life Insurance Corporation (LIC), seeking divestment of their holdings in tobacco companies and also seeking to prevent these from making such investments.

The current round of stake sale by the general insurance firms comes as this was meant for increasing the book value of public sector general insurance companies. “This is purely a market operation, aimed at increasing our book value. We still retain a substantial number of ITC shares. We will do whatever the government directs us to do regarding investments in tobacco companies,” Kumar told Business Standard.

However, while public sector general insurance companies sold shares in ITC, LIC increased its stake from 14.32 per cent to 16.29 between the third and the fourth quarters of FY17, according to BSE.

Finance Minister Arun Jaitley, in Budget 2016-17, had proposed listing all five public sector general insurers — GIC, New India Assurance, United India Insurance, Oriental Insurance and National Insurance.

The public sector general insurance companies are working on improving their financials ahead of listing, and this is the reason for the stake sale.

The investments of public sector general insurance companies stood at Rs 1,22,650 crore in the March quarter, almost double that of private sector companies, according to data from the Insurance Regulatory and Development Authority of India. However, the companies are not allowed to account these for calculating solvency ratios.

According to data available in the public domain, while National Insurance and Oriental Insurance have solvency ratio below the regulatory requirement of 1.50 per cent, United India and Oriental Insurance reported losses recently. New India Assurance and National Insurance, too, saw a decline in profitability.