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C. Shivkumar

BANGALORE, June 11

GENERAL Insurance Corporation of India (GIC) has transferred its stake in the four public sector insurance companies to the Government free of cost.

High-level sources said that the Ministry of Finance had taken the stand that there was no need to compensate the GIC, which is the designated national reinsurer. The sources said that the Government's stance was conveyed on the ground that GIC had already taken substantial dividends from all the four companies - New India Assurance Company Ltd, Oriental Insurance Company, National Insurance Company Ltd and United India Insurance Company Ltd. The dividends earned from these companies were to be treated as compensation for the transfer, they added.

However, GIC is clearly peeved by the Government's move. The sources said, "The Government appears to have forgotten that all these years the dividends earned were passed back directly in the form of GIC's annual dividend cheque."

GIC and the four public sector companies have never availed themselves of any capital support from the Government after nationalisation since the early 70s unlike the banking sector, where there was repeated capitalisation at periodical intervals. Even when the four insurers' paid-up capital was raised, the resources were provided directly from GIC's own reserves, the sources added.

Besides, the sources said these four companies, including GIC, had also paid large taxes to the government, despite the fact that historically they had all suffered underwriting losses due to low tariffs. The losses in underwriting were balanced with incomes from investment, the bulk of it in the form investments in government securities.

GIC had initially sought independent valuation of its stakes in the four companies before transferring it to the Government and had hoped for at least partial compensation on the basis of the valuation. This was because the general insurers have net worth in excess of Rs 2,000 crore each.

The largest of these public sector companies, New India Assurance, had a net worth of over Rs 5,000 crore, which translated into a book value of over Rs 500 per share. Even after netting for some unexpired risks, and large provisions for certain claims, the book value in all the four companies is expected to be in excess of Rs 200 per share, the sources said.

This value has been estimated after netting for certain unprovoked liabilities, especially motor vehicle third-party liabilities. GIC had accordingly sought the equity transfer to the government at book value after netting for all these liabilities.

Besides, the sources said that all the four companies had substantial holdings of government securities as part of their investment portfolio. These investments have all been valued on the basis of historical cost basis. The current market value of these investments are considerable and constitute a significant portion of the general insurance companies' hidden reserves. But these values were not taken into account.

GIC's fundamental reason for seeking this kind of value for its stake was that it had become a global reinsurance company. Accordingly it would need a higher level of capitalisation to compete with global companies.

GIC's current net worth is about Rs 3,000 crore with a paid-up equity base of Rs 215 crore.

The Government's assumption of control of the four companies, the sources said, was now likely to a be precursor to their eventual divestment either in favour of the public sector banks or directly to the public.

In fact, one of the moves suggested more than a year ago by the general insurers was a method of cross holdings between the banks and the insurers to bring about greater operational synergies.

At the same time, such a move was also intended to ensure that the public sector character of the insurers remained in place.

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