There is a huge leg space for GIC of India to expand its business and earn substantially in the years ahead. As a reinsurance market leader in India, which is the tenth largest life and fourth fifteenth largest non-life market, GIC, through its global strategy of focusing on better premium fetching business, can show wonderful results and make its shareholders cheer for their long term holding. Other than the home market, its focuses on the fast-growing Afro-Asian including Russia and CIS and Latin America ensure better quality business, thanks to its carefully chosen target. It has already shown remarkable achievement in cutting the combined ratio when the world average has been on arise in the last three years.<\/strong><\/p><\/blockquote>\n\n\n\n

Seven months after listing of India\u2019s largest reinsurer\u2019s stocks on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE),its Board of Directors, on 25^{th<\/sup> May this year, recommended dividend of Rs 13.50 per share of Rs 5 face value. That was staggering 270 percent dividend on the face value, less than two per cent of the IPO price. This is also one of the highest rates of dividend declared by a public sector undertaking (PSU) to its shareholders in the financial year 2017-18. It also paid issued one-for-one bonus share simultaneously. In normal circumstance,these prodigious rewards to shareholders would have bull-fired the stock. But that, barring short-term spurt in the prices for couple of days, didn\u2019t happen.It reported net profit of Rs 3233 crore for the year ended March 2018, the highest in the history, which made its earning per share over Rs 36 on the pre-bonus equity.<\/p>\n\n\n\n}

Yet the stock of this highly profitable and\nfour and half decades old company with market leadership and presence in high\ngrowth potential failed to shine. Investors are yet to show fascination towards\nthis, though some of the analysts appeared bullish on the stocks for medium to\nlong term earning. Plenty of unanswered questions haunt the insurance stocks\nimmediately upon their listing and when many are contemplating to list on\nbourses. It has never touched the IPO price of Rs 867 for retail investors and\nRs 912 for institutional investors. At the current post-bonus price of around\nRs 340 a share, the depletion in investors\u2019 10-month stock holding value is 20\nper cent and annualized, obviously, is 24 per cent. At this price, its\nvaluation is less than four times the book value and far less than the\nvaluation of other listed insurance stocks, despite being the leader of the\nsegment and long standing player with consistent growth in top and bottom\nlines. General Insurance Corporation of India\u2019s institutional strength,\nunbeatable leadership in its segment, business model, proven skills and growth\npotential do not warrant a lower earning ratio. These leave no space for panic.\nNevertheless, market is unconvinced. How long would this be so is a question\nthe time will answer.<\/p>\n\n\n\n

Life Insurance Corporation of India (LIC of\nIndia) picked up over 75 million shares for a price of Rs 912 per share, which\nconstitutes more than 8.60 per cent of GIC\u2019s equity capital of Rs 438 crore.\nNow LIC of India is the largest public shareholder in GIC of India. The retail\npublic is currently holding only 1.60 per cent of the equity. Some analysts\nsay, limited floating stocks available in the market may have created a\nresistance for large institutional buying fearing a probable price volatility.\nBut the time is not too far for GIC of India to dilute 10 per cent more for\npublic holding to bring down the promoter\u2019s holding level to 75 per cent. That\nmay see many of the large investment institutions, which are seemingly watching\nthe stocks closely now, finding opportunities for sharing the fortune of the\nreinsurance business prospects and its experience.<\/p>\n\n\n\n

One of the major reasons of bearish sentiment\nin the stock was understood to be the missing of an anchor investor in the IPO,\nwho could have conveyed message or rung a weather bell of investments in the\nnew sector like reinsurance, which had the potential to grow to the tune of Rs\n70,000 crore premium by the year 2022 in the domestic market alone. Investments\nin the so-called blue-chip stocks are also not absolutely safe as the price can\nbe dragged down along with fall in overall indices for which anything from political\nrisk to natural calamity could be sufficient reasons. Though that couldn\u2019t be a\njustification for its 10-month long price slip bringing nightmare for traders,\nwhat obviously notable is the new opportunity the current level has created for\nentering into the stock for a long term return.<\/p>\n\n\n\n

But is it really so? Can GIC of India and\nreinsurance business be considered promising for equity investors? Is there\nsomething wrong with the perception of insurance business or its operational\nmetrics? Haven\u2019t analysts understood the nuances of reinsurance business? A\nrealistic analysis on the company’s financial fundamentals, business model,\nfuture growth potential and GIC’s skills may give different picture. <\/p>\n\n\n\n

No matter whatever be the answer; this\nobviously shows the stock is becoming cheaper and offers better opportunity for\nlong term investments. On the other side, how do analysts weigh the stock is\nyet to be clear. Analysts whom Ecostar Business<\/em> spoke appeared highly\nbullish on GIC stocks with an opinion: “It is a good investment bet for\nmedium to long term return. One should not buy any such stock with greediness\nto make quick money. These stocks are linked with overall economic performance\nof India and the world wherefrom large size of its business emerges,” he\nsaid.<\/p>\n\n\n\n

However, it is still not clear, whether a\nlarge section of analysts is matured enough to figure out the nuance of\ninsurance business with enough prudence, especially in re-insurance.  But it is always better to let analysts\nunderstand the nitty-gritty and nuances of the re-insurance business directly\nfrom the management itself as they present them with facts and figures rather\nthan conjecturing over the business and possibilities based on the figures\navailable in public domain.<\/p>\n\n\n\n

GIC of India seems to have set up a team with\nsufficient knowledge of equity market to clarify doubts of share holders and\nprospective investors, so that nothing remains enigmatic about its business and\nfinancials. In Indian stock market, most retail investors believe it is the\ncompany that controls its share price, though it is the market force and\ninvestors sentiment. But every investor\u2019s question is answered patiently and\nconvincingly, says the top management of GIC of India.<\/p>\n\n\n\n

The top management has already spent enormous\ntime in meeting equity analysts, investment consultants and investment\ninstitutions on an average at least once in 10 days to explain to them how its\nbusiness potential could be looked at and financials worked vis-\u00e0-vis the\nglobal reinsurance business. Hundreds of analysts have been already explained\nand given opportunity to read its business models closely. The management\nexplained to them how GIC of India stood different from other insurers. GIC of\nIndia\u2019s is a B2B business model unlike other insurance business model which are\nlargely B2C models.<\/p>\n\n\n\n

Insurance stock is a new asset class for\nIndian equity investors. Every business has its own risk. Insurers cover\nother\u2019s risk, which obviously means an insurer with long track record of\nprofitability knows how to stay safe from all-pervading risks, besides having\nknowledge of how to make and save its own money. It is imprudent to question\nthe capability of a four-and-half-decade old insurer, who might have seen good\nand bad times over the period and acquired knowledge of both financial and\nunderwriting risk management. A brilliant insurer takes calculated risks,\nthough unforeseen is unavoidable. Each analyst has been convinced that its\ngeographic diversity not only helps it expand its underwriting business but\nalso to balance the portfolio risk. Similarly, it has built a diversified\nportfolio to absorb possible risks by covering many key business lines like\nreinsurance of fire, property, marine, motor, engineering, agriculture,\naviation, health, liability, credit and financial liability, and life\ninsurance.<\/p>\n\n\n\n

GIC of India\u2019s DRHP explained the risk factors more lavishly while offering its stocks at a hefty premium, which the management calls reasonable in the context of comparative valuation with that of other listed insurance stocks. Some analysts also say \u201cthe premium was not higher.\u201d  Let\u2019s not forget, GIC is the only reinsurance company listed on the stock exchanges and would also be theonly one in the foreseeable future too. So naturally, it is the market leader in the business of it focus and will continue to be in the same position. That also calls for a higher premium valuation, set aside the performance consistency over the last five years under different domestic and globale conomic atmosphere, which also works in favour higher premium. In the equity market, usually the market leadership and performance consistency are valued with higher premium over the peers, a fact that no analysts can rule out. <\/p>\n\n\n\n

But it seemed\nanalysts weighed more heavily the risk factors stated in the DRHP than the\nprospects of its business and the inherent nature that is globally accepted and\nunchallenged. More than 90 risk factors covered in over 30 pages in the DRHP\nshould not hence haunt an investor unreasonably since such risk factors aren\u2019t\nuncommon in the thriving reinsurance market. \n<\/strong><\/p>\n\n\n\n

Reinsurance business is directly linked with\nthe prospects of economic boom, which the world sees inevitable in a country\nwhere global investors have set their eyes on. Today, India is the fastest\ngrowing economy in the world and the trajectory is set to stay for another\ndecade at least. Less than two years ago, Warren Buffett, the world\u2019s most\nsuccessful investor, who once had seen reinsurance as one of the most\nfascinating sectors for investment, in an interview to a leading business news\nchannel expressed his desire to fly down to India, if someone would offer him\ngood sector for investments. Six months later Buffett\u2019s Berkshire Hathaway Inc\nwon a license to open an office in India with an eye on reinsurance market\nlooking at the growth potential in the country. Buffett\u2019s company finds India\nas an important market in view of the growth potential available in the\ncountry. Experts predict the insurance and re-insurance industries to grow at\nan impressive rate for the next five years in the context of huge\nunder-penetration existing in the country. The last five years saw the industry\ndoubling its size.  In fact, India shows\na reverse trend from the global market trend, where glut of capital in\nreinsurance industry has led to a decline in prices of for some coverage.<\/p>\n\n\n\n

Forty five years is a long enough period for\nit to make it trust worthy among insurance and reinsurance customers in India\nand abroad. It writes reinsurance for every non-life and life insurance\ncompanies in India and has long-term business relationships with almost all of\nthese domestic insurance companies. Reinsurance premiums in India are expected\nto rise 11 to 14 per cent CAGR to touch Rs 70,000 crore by the year 2022.  For the financial year ended March 2018, it\nreported premium income of Rs 41,873 crore as against Rs 33,740.79 crore of the previous year. The net income from\ninvestments rose substantially to Rs 3831 crore. The claim incurred for the\nyear 2017-18 was Rs 21,352 crore. <\/p>\n\n\n\n

GIC of India was the 12 largest reinsurer in\nthe world based on 2016-17 figures with around one third of its business coming\nfrom abroad. It writes business from more than 160 countries with offices in strategic\nlocations. Its strategy of establishing footprint around the globe to balance\nits portfolio risk has worked well. This led to an exponential growth in\nunderwriting revenue with CAGR of around 25 per cent. The gross premium for\nrisk outside India is showing a steady growth in the last three years. A. M\nBest rated it \u201cA-\u201d (Excellent) with a stable outlook for 10 consecutive years\nfrom 2007 to 2016. The leading credit rating firm, CARE Ratings has\nconsistently rated GIC of India with \u201cAAA\u201d, a stable outlook for its claims\npaying ability since 2004. This reflects its strong balance sheet,\ncomprehensive risk management framework and capabilities.<\/p>\n\n\n\n

Extremely careful underwriting strategy with\ndeployment of capital across diverse lines of business makes it capitalize on\nopportunities for favorable returns. In fact, as it maintains a diversified\ninvestment portfolio to generate investment returns that support its\nunderwriting liabilities, thereby enhancing shareholder value. Its strong\nbalance sheet allows it to underwrite risks across the Indian insurance market\nincluding large policies. GIC of India administers three domestic reinsurance\npools and one Afro Asian reinsurance pool that allow it to manage reinsurance\neconomics better and strengthen relationships with its customers. <\/p>\n\n\n\n

In November last\nyear, A.M. Best in its briefing titled Global\nReinsurance – Where Have All the Losses Gone?<\/em> projected an estimated\ncombined ratio of 110 percent for its composite of global reinsurers, with\nreturn on equity (ROE) ranging from zero percent to minus five percent. GIC of India, however, could perform at\nthe best ratio of around 100 per cent, showing a reverse trend to the global\naverage, which plunged below 100 forcing global insurers to harden the premium.\nIn fact, the combined ratio of GIC of India at 108.86 per cent in 2015\nconsistently came down to 107.03 per cent in 2016 and to 100.16 per cent in\n2017. \u201cIt is aiming to grow the premium income in higher margin geographies like the US, China,\nJapan, Israel Turkey and also explore regions where pressure on premium is\nlower.<\/p>\n\n\n\n

It is ultimately careful balancing act on the\nchoosing geography for premium income, managing risks and fund management that\nwould make it a successful institution. History did not leave behind it anything\nto repeat for worry. Competition would make it more prepared; its public\nshareholding now makes it more responsible; public sector advantage makes it\nmore accountable. No worry has a space.   \n<\/p>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Seven months after listing of India\u2019s largest reinsurer\u2019s stocks on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE),its Board of Directors, on 25th May this year, recommended dividend of Rs 13.50 per share of Rs 5 face value. <\/p>\n","protected":false},"author":2,"featured_media":5659,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[14,34],"tags":[],"class_list":["post-203","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cover-feature","category-insurance"],"_links":{"self":[{"href":"https:\/\/dazzling-chebyshev.103-73-189-254.plesk.page\/index.php?rest_route=\/wp\/v2\/posts\/203","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dazzling-chebyshev.103-73-189-254.plesk.page\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dazzling-chebyshev.103-73-189-254.plesk.page\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dazzling-chebyshev.103-73-189-254.plesk.page\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/dazzling-chebyshev.103-73-189-254.plesk.page\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=203"}],"version-history":[{"count":1,"href":"https:\/\/dazzling-chebyshev.103-73-189-254.plesk.page\/index.php?rest_route=\/wp\/v2\/posts\/203\/revisions"}],"predecessor-version":[{"id":5660,"href":"https:\/\/dazzling-chebyshev.103-73-189-254.plesk.page\/index.php?rest_route=\/wp\/v2\/posts\/203\/revisions\/5660"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/dazzling-chebyshev.103-73-189-254.plesk.page\/index.php?rest_route=\/wp\/v2\/media\/5659"}],"wp:attachment":[{"href":"https:\/\/dazzling-chebyshev.103-73-189-254.plesk.page\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=203"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dazzling-chebyshev.103-73-189-254.plesk.page\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=203"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dazzling-chebyshev.103-73-189-254.plesk.page\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=203"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}