NEC IPO
The possible listing on the National Stock Exchange of India is expected to significantly strengthen the financial position of at least three government general insurance companies. These three companies together hold about 75 million shares in the country’s largest stock exchange. Apart from LIC, these companies will also benefit greatly from this. Since LIC’s stake in NSE is about 11 percent, it will not only benefit from it, but other insurance related companies will also benefit. Let us understand this in detail.
The stake in National Insurance Company, Oriental Insurance Company and United India Insurance Company would be worth Rs 11,500 crore to Rs 12,000 crore for these companies at NSE’s carefully estimated listing price of Rs 1,500 per share, i.e. each company’s share would be around Rs 4,500 crore.
With this money, the financial strength ratio i.e. solvency ratio can be improved by about one percentage point. A person associated with this matter said that this can improve the solvency ratio by about 100 basis points i.e. 1%, which is equivalent to injecting approximately the same amount of capital. These insurance companies are currently working below the required solvency level of 1.5 times as per regulatory rules. As of March 2025, the solvency ratio of National Insurance stood at -0.67, Oriental Insurance at -1.03 and United India Insurance at -0.65, indicating continued pressure on their balance sheets.
Companies will get huge benefits!
This money is expected to improve the solvency ratio, which is currently below the required limit. These ratios have weakened with time. In June 2024, the ratio of National Insurance was -0.46 and that of United India was -0.73. In contrast, listed company New India Assurance has maintained a solvency ratio of around 1.9, which is well above the norms. However, these capital needs can be compensated to some extent by NSE listing. These companies have a large stake in the exchange, the value of which is currently undervalued due to the exchange not being listed. Through public listing (IPO), the price of these stakes can be decided according to the market, which can fetch a huge amount of money.
The pressure on solvency is primarily due to weak insurance policy issuance performance and persistent losses, especially when excluding realized market value gains. According to the previous report of ICRA, to meet the solvency level of 1.5, these three companies may require capital of Rs 15,200 crore to Rs 17,000 crore. There were also reports that the government is considering infusing new capital of up to Rs 5,000 crore in these three loss-making companies. The proposed IPO, which is expected to raise more than Rs 20,000 crore, is expected to be entirely an offer-for-sale, i.e. existing shareholders will sell their shares. In this the exchange will not issue new equity.
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