State-run General Insurance Corp of India (GIC Re) slumped as much as 14.5 percent on market debut on Wednesday after raising 111.76 billion rupees ($1.72 billion) in the country's biggest initial public offering in seven years.
Concerns about valuations have marred the debuts for some of recent insurance IPOs in India, including ICICI Lombard General Insurance, which fell on its first day of trading last month.
GIC Re was fairly priced relative to its domestic rivals but was more expensive than global peers, analysts said.
The country's top reinsurer was priced at a price-to-book value of 1.5 to 1.6 times, more than Swiss Re and Munich Re, according to financial firm Sushil Finance. Swiss Re and Munich Re were trading at around 0.9 times, Thomson Reuters data showed.
"A good rally would have been if it were priced at 1.2 times its book value. As per our valuations, the issue price was already expensive by about 30 percent," said Vatsal Shah, head of wealth management at Sushil Finance.
GIC Re was trading at 801 rupees at 0759 GMT, down about 12 percent from its IPO issue price of 912 rupees. It fell as low as 780 rupees in early trade.
The falls came even as indexes hit record highs, buoyed by the government's $32 billion state bank recapitalisation plan.
Still, analysts say the outlook for India's insurance sector remains attractive given that it remains relatively under-penetrated compared to other countries, and would likely benefit from rising income levels.
Crisil estimates reinsurance premiums in India will rise at an average annual rate of 11-14 percent over the next five years to reach 700 billion rupees by March 2022.
GIC Re's IPO was fully subscribed on the last day of the offer, with the Indian government, which fully owned the reinsurer before the IPO, raising 96.34 billion rupees by selling some of its shares.