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C. Shivkumar

Bangalore , Dec. 21

FACED with large claim settlements, public sector general insurers are expected to prune their dividend payouts to the government during the current year.

The four PSU insurers and the General Insurance Corporation of India, the national reinsurer, paid out a dividend of Rs 250 crore for the last financial year 2004-05.

But sources said that this year, all the four PSU general insurers had incurred large claims on account of floods.

The sources said only a part of the risks were reinsured. But motor insurance, where the claims were among the highest, were entirely on their own accounts. Consequently, the sources said, the four insurers - New India Assurance Company Ltd, Oriental Insurance Company Ltd, National Insurance Company Ltd and United India Insurance Company Ltd - were likely to face slippages in net profits in the current year.

Besides, the sources said, profitability on property insurance had also dipped during the current year. The sources said that fire insurance claims ratios that had averaged about 40 per cent during the last two years were up to about 70 per cent. (Fire portfolio includes floods and cyclones).

The sources said that provisions were also expected to show large increases during the year in anticipation of IBNR (incurred but not reported) events that could translate into large claims from some of large industrial houses in both the western and eastern coasts affected by floods and cyclones.

Besides, the sources said, the solvency pressures had also mounted on account of depreciation and non-performing assets (NPA) in the debt component of their respective investment portfolios.

Since the end of the last financial year and this year, the 10-year yield to maturity had slipped by at least 50 basis points.

In addition, insurers have substantial NPAs on account of State government-guaranteed securities, all of which would have to be provisioned, leading to a weakening of the solvency ratios.

The sources said the insurers had booked substantial profits by liquidating some of their equity portfolios through block deals. Last year, the profits generated averaged about Rs 450 crore for the each of the insurance companies. The sources said the profits from such block selling were upwards of Rs 500 crore for each of the insurers, since all of them had taken advantage of the bull run in the stock markets.

However, some of these profits would be used to bolster their capital and improve their respective solvency ratios. The sources said that bolstering the solvency ratios were necessitated, since none of the insurers have received any capital support from the government since nationalisation.

Besides, proposals for raising equity from the capital marlket were still pending before the government, they added.

Consequently, large dividend payouts at this juncture would weaken their capital and inhibit future business growth targets, sources said.

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