State insurers latch on to investment income

There’s something about investment return as far as state general insurers are concerned. With gains round the corner, this looks to be their best possible bet to make up for their underwriting losses. And less discounting of premiums and offloading high-risk portfolios mean there’s a double sweetener on the hands.

Coming days look promising for the general insurance industry. With the stock market on rebound, our equity investments are set to soar. It is set to double by this fiscal end, said G Srinivasan, CMD, New India Assurance. All four insurers New India Assurance, National Insurance, Oriental Insurance and United India Insurance  are all optimistic about a better equity investment this fiscal.

The investment income of New India Assurance grew over Rs300 crore in April-December 2012 to Rs2,055 crore from Rs1,709.14 crore in the previous fiscal. More than half of this investment return comes from our equity portfolio. Since we are active participants in the capital market, we analyse the stock movement well and get invested in it, said a New India Assurance official.

Ditto for Oriental Insurance, which registered a profit of around Rs450 crore for the quarter ended December. The total investment income of the company and the book value now stand at over Rs1,700 crore and Rs1,100 crore, respectively. We are a major player in the equity market and expect better investment income in coming fiscal, said A K Saxena, CMD, Oriental Insurance.

The case is no different at United India Insurance, where the total investment income came in close to Rs1,500 crore in April-December. As of February 5, the stake value of National Insurance and Oriental Insurance worked out to Rs4,298 crore and Rs4,429 crore, respectively.

Investment portfolios can sometimes yield a bounty that can cushion the impact of a poor underwriting show. An underwriting performance refers to profit after claims payment and expenses. Of late, PSU general insurers have been under strain on this front, faced with bleeding portfolios on third party policies, group health and fire.

In a bid to stem losses from group health portfolios, the finance ministry last year had suggested insurers do away with loss-making businesses, cut down on discounts and take steps to make it a less competitive scenario for themselves, which has in fact led to an overall drop of around 4-5% in combined loss ratio (losses incurred plus adjusted expenses) for all the four PSU insurance companies. Data from the Insurance Regulatory and Development Authority endorse this, which show underwriting losses of PSU insurers plunged as much as 22.94% to Rs5,817 crore in fiscal year 2011-12, from Rs7,549 crore in 2010-11.

Going forward, PSU general insurers are weighing strategic equity investments, too. We will place our bids strategically for the upcoming PSU divestments, revealed a source of a top PSU general insurer. According to year-end figures, state-owned insurers now command almost 56% of market share with a premium of over Rs35,000 crore.

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