The Hindu Business Line : Insurers use bull run profits to boost capital

Along with the public sector insurers, some of the private sector non-life insurers have also booked large profits as a result of the bull run in the stock markets.

Bangalore , Sept. 23

GENERAL Insurers have booked large profits in the stock market bull run and have used the proceeds to beef up their respective capital.

Sources said each of the public sector non-life insurers were expected to have booked profits in excess of Rs 350 crore during the period. Along with the public sector insurers, some of the private sector non-life insurers have also booked large profits as a result of the bull run.

The sources said the profits from the sale of equities would be taken as part of the reserves to improve the net worth of the respective companies. The sources said almost all the companies had exited some of the stocks well before the BSE reached the 8,500 levels. Yet, despite liquidation of some scrips, the sources said the PSU insurers were holding to some of the blue-chips stocks and some of the PSU stocks which were acquired at low prices.

They said the profits earned would also help them offset the high claims incurred during the recent floods in Maharastra, and Gujarat. The claims ratios of all the insurers are widely estimated to deteriorate this year on account of the natural disaster. As a result, the underwriting business is likely to be red lined.

Some of the property losses were reinsured. But losses in the automotive sector in these regions were on the high side and fears were that in some companies it could exceed the provisions. Insurers normally make provisions ahead of the claims as part of a prudential accounting practice. These provisions are based on the expected losses in the sector and past sector-wise claims history.

The sources said they would still have substantial profits even after meeting the claims for transferring to the reserves. This will further improve the capitalisation of the companies.

For the private sector companies, the increased capitalisation will reduce the load on their joint venture partners.

The floods, the sources said, had considerably weakened the solvencies of the private sector.

With the Insurance Regulatory and Development Authority barring them from bringing in capital by way of preference shares or subordinated, the burden was on their partners to infuse additional equity funds.

However, for the public sector, the sources said, the Government had conveyed that it was unwilling to infuse capital. The Government, the sole shareholder in all the four PSU non life insurance companies - New India Assurance Company Ltd, United India Insurance Company Ltd, National Insurance Company Ltd and Oriental Insurance Company Ltd - has never infused capital since nationalisation. Moreover, none of them have been permitted to tap the markets through the initial public offering route for raising capital.

Besides, returns from the portfolios of government securities have dipped since last year.

With the 10-year yield-to-maturity at 7.1 per cent, against the corresponding level of 6.of the previous financial year, insurers would actually be making provisions for depreciation, leading to some deterioration in their solvency.

But the profits realised through the sale of investments was expected to offset solvency pressures and help insurers meet growth targets for the year consistent with their respective corporate plans.

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