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mains Test Series 2018
Q. Disinvestment in insurance companies: Comment on government's decision of listing public sector general insurance companies.
Jan 20, 2017 Related to : GS Paper-3

Ans :

Introduction- 

Recently the Cabinet Committee on Economic Affairs has given in principle approval to the listing of five public sector owned general insurance companies on the stock markets, with a plan to divest 25% of the Centre’s stake in each of them over time. The disinvestment plan will bring significant resources to the central exchequer. 

Companies to be divested-

The companies whose stake would be divested are The New India Assurance Company, United India Insurance Company, Oriental Insurance Company, National Insurance Company, and General Insurance Corporation of India.

Analysis-

  • Last year, the gross premium income of four of these companies increased by over 12%. But their profits after tax fell by more than half from a year earlier, from ₹3,094 crore in 2014-15 to just ₹1,499 crore in 2015-16. 
  • A closer scrutiny reveals that high underwriting losses, which increased 55% in the year, were largely responsible for profits falling at these firms even as revenues rose.
  • Public shareholding in these firms will lead to questions about such outliers in performance that haven’t been heard under the government’s present 100% ownership structure.
  • Public shareholding in government owned companies will ensure the higher levels of transparency and accountability. 
  • It will allow these insurance firms to raise more capital from markets instead of relying on taxpayers’ money alone. 
  • Listing of public sector general insurance companies will give them more information about the financial health and clarity about the company and also brings significant resources to the government. 

Conclusion-

The governments’ decision of listing of public sector general insurance companies will help the market in discovering the value of the general insurance business in India since there are no listed players currently. It will also ensure more transparency and accountability in the functioning of the company.


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