Key Takeaways From GIC Re IPO Analyst Meet

General Insurance Corporation of India (GIC Re), the sole reinsurer in India, plans to raise Rs 11,370 crore by offloading 12.47 crore equity shares through an initial public offer, according to its draft prospectus.

The reinsurer will sell 14.22 percent stake in the price band of Rs 855-Rs 912 per share over three days starting October 11. It will offer a discount of Rs 45 per share for retail investors and employees. The IPO will value the company at Rs 80,000 crore at the upper end.

While the government will sell 12.2 percent stake – 10.75 crore shares – worth Rs 9,804 crore, the company is likely to mop up Rs 1,568 crore from the sale of the remaining stake. GIC Re plans to use the money to strengthen its capital base and for general corporate purposes, said its red herring prospectus.

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

The company offers reinsurance services in businesses such as fire (property), marine, motor, engineering, agriculture, aviation, health, liability, credit and financial liability, and life insurance.

Highlights Of The Analyst Meet:

• GIC Re is the largest reinsurance company in India and accounts for about 60 percent of the premiums ceded by Indian insurers to reinsurers in the year to March 2017.
• The company has also presence in Dubai, London, Moscow, Malaysia and South Africa and it operates across 161 countries.
• Indian reinsurance market is growing at a compounded annual growth rate of 11-13 percent with major business coming from non-life insurance players. For GIC, 60 percent of business comes from private insurance space, while the remaining is from state-owned insurance companies.
• GIC writes reinsurance for every non-life and over half of the life insurance companies in India.
• Agriculture contributes the most to its business, followed by fire and motor segment.
• Being the sole reinsurer in India, the company doesn't have domestic peers. However, when compared to global peers, it has the lowest net expense ratio of 18.53 percent and highest net investment yield of 12.34 percent as of 2016-2017.
• GIC holds fixed deposits worth Rs 7,611 crore for non-Indian business at various overseas financial institutions.
• The company has a separate bank account in London to deal in 140 different foreign currencies for premium collection and claim settlement for foreign customers. Foreign currency exchange risk does not affect the company materially.
• The combined ratio was down to 98.4 percent in quarter ended June from 100.2 percent as of March 2017. The company plans to reduce it in short to medium term in the range of 95-100 percent.
• The company has price-to-book value of 1.5-1.6 times, while the price-to-earnings is 24 times as compared to global average of 45 to 50 times
• It had a gross premium book of Rs 33,741 crore in last financial year, of which 30 percent was contributed by overseas business. It has been growing at CAGR of 32 percent the past four years.
• The company has an investment book of Rs 69,134 crore by market value for the year ended March 2017. Of this, 55 percent is invested in equities and the rest in G-sec securities of the Centre and states.
• The company paid a dividend of Rs 1,002 crore to the government in last financial year.
• The company aims to maintain its dominant role in the industry, also expand business operations internationally and grow profitably through reduction in combined ratio.
• GIC Re also plans to acquire a reinsurance company that is a member of London's reinsurance marketplace Lloyd's in one year.