While banks lag, party’s getting started for Indian insurance IPOs




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          ChartsValuation & Peer ComparisonCommunity BuzzPEER COMPANIESBank of IndiaEXPAND TO VIEW ALL By Andy Mukherjee

          While most of India’s banks are struggling to raise capital to become whole again, insurance companies are the toast of a fundraising party by their principals. A $900 million initial public offering at ICICI Lombard General Insurance Co., the nation’s largest non-state-owned property and casualty underwriter, straddles those themes.

          The shares, which Bank of America Merrill Lynch said Friday will sell for 651 rupees to 661 rupees ($10.21 to $10.35) apiece, are being offered by the current owners — Mumbai-based ICICI Bank Ltd. and a unit of Canada’s Fairfax Financial Holdings Ltd. — at a 48 percent premium to the last deal: Fairfax offloaded part of its stake to investors including Warburg Pincus LLC in March.

          At the top end of the range, ICICI would pocket about $330 million. That’s less than its loan-loss provisions in one quarter. However, with ICICI Lombard publicly traded, the 58 percent of the unit that the lender continues to own will go some way toward supporting its price-to-book ratio of 1.9, a steep premium to the 0.8 average for state-controlled lenders.

          Until recently, India had no publicly traded insurance companies. ICICI Prudential Life Insurance Co. ended the drought a year ago, and its success — the shares are up 46 percent so far this year — paved the way for others. The day after the close of the ICICI Lombard public offer, SBI Life Insurance Co. plans to launch its own IPO, according to a Livemint report.

          State Bank of India, the controlling shareholder of SBI Life, is also staring at a lousy loan portfolio. It makes sense for the country’s largest commercial lender to unlock value wherever it can. Also on the way is the IPO of HDFC Standard Life Insurance Co., the second-biggest life insurer after state-run Life Insurance Corp.

          Is there investor appetite for all this insurance paper? At three times embedded value, ICICI Lombard is more expensive than People’s Insurance Co. (Group) of China, but a lot cheaper than Australia’s Suncorp Group. India is woefully under-insured and promises rapid growth. On $27 billion in economic damage from floods and cyclones since 2014, losses for insurers came to just $2.5 billion.

          ICICI Lombard has 8.4 percent of the Indian market, a half-point increase in two years. State-run behemoths still dominate, almost two decades after private insurers were allowed back into the country, though the industry has only started stirring in the past 10 years.

          Before 2007, the regulator fixed rates for fire, engineering, and auto cover, which together account for about 70 percent of non-life business. That’s changed. An under-penetrated market, plus cost savings from selling policies online to an increasingly digital-savvy population, means the Indian insurance party is just getting started.

          (This column does not necessarily reflect the opinion of Bloomberg LP and its owners)




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