The Hindu Business Line : PSU general insurers book big trading profits

Public sector non-life insurers have booked large profits by offloading part of their equity investments, taking advantage of the booming stock markets.

Sources said each of the PSU non-life insurers have earned profits of over to Rs 400 crore this year so far, through sale of some of their equity holdings. This would be for the second year in succession that the insurers would be making such large profits.

During the last financial year too, the four PSU insurers - New India Assurance Company Limited, National Insurance Company Ltd, United India Insurance Company Ltd and Oriental Insurance Company Ltd - had each earned profits of over of Rs 400 crore through sale of their equity holdings.

This year, the profits were also partly due to shrewd treasury operations, the sources said. This is because, unlike last year, they have sold less of their holdings to earn high profits. The profits, the sources said, will be used to strengthen their capital and comply with the solvency guidelines of the Insurance Regulatory and Development Authority. The authority's prescribed solvency margin is 150 per cent. The profits from investment trading will be despite the depreciation of their fixed income securities - government securities, state government loans and corporate debentures. This was evident with the hardening of the ten-year yields rising to 7.35 per cent this year, up from 6.7 per cent during the beginning of this financial year.

Cushioning high claims

The investment profits, the sources said, would also help them to partly offset the impact of high claims payouts incurred this financial year. The core income of the insurers continues to be under pressure from high claims ratios. Motor insurance claims continued to be over 150 per cent. Other portfolios, including fire, marine and marine hull, are still in the black, though the claims ratios were on the ascent. Claims ratios that were less than 60 per cent in these portfolios were expected to be over 70 per cent this year, on account of the floods in Mumbai, Gujarat and Karnataka. Some of the losses would have to be provisioned, the sources said.

Typically, general insurance companies make large provisions for unexpired risks and for incurred but not reported events. Large provisions consequently implied lower net profits. But despite these, insurers were expected to end with healthy bottom lines supported by the investment profits, the sources added.

Double digit growth

Besides, the profits would also help them sustain their double-digit growth for the next financial year. This year, the industry has so far grown by about 16 per cent. For the next financial year too, insurers said, the strong GDP growth forecast would enable them to sustain a double-digit growth. Every one per cent increase in the GDP translates into a 3-per cent growth in premium accretions for the non-life insurance industry. The sources said that given the delays involved in the Government working out a mechanism for the insurers to raise capital, insurers had exercised the option of selling a portion of their equity holdings. In fact, since nationalisation, none of the public sector companies have been capitalised by the Government nor have they been allowed to raise capital from the markets, unlike the banking sector.

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