The Hindu Business Line : Insurers' investment earnings up last year

Sources said that the average yields on investments for the last financial year, was in the region of 8 per cent. Mean yields on investments had dropped to as low as 6.5 per cent for the insurance companies in 2004, adversely impacting their investment earnings.

Sources said that during the last fiscal insurers were not allowed to take part in the call markets. However, insurers have extended support to the banking sector through the Collateralised Borrowing and Lending Obligations (CBLO) markets, at rates close to about 8 per cent in the last few weeks of March. CBLO is a discounted instrument available in electronic book entry form for the maturities ranging from one day to one year as per RBI guidelines. This had enabled insurers to rake in large profits during the last financial year when volumes in the CBLO market shot up to Rs 10,000 crore.

"These profits were in addition to their earnings from sales in the equity markets. Sale of equities from their portfolios has brought profits of at least Rs 500 crore for each of the public sector insurer during the last fiscal," the Chairman and Managing Director of the public sector, National Insurance Company Limited, Mr. V. Ramasaamy confirmed. He added," we have made profits in excess of Rs 500 crore and the actual figures will be known after auditing of the accounts is completed."

This year, however, investment earnings are also expected to be supported by coupon flows from investments. In fact, insurers have been worried that with the falling coupons during the last few years, their interest flows would be insufficient to offset underwriting losses.

However, a reversal of that trend appears to have begun on account of the tightening liquidity situation in the markets, the sources said. In fact, during the first auctions of the current financial year of government securities, the cut-off yield on ten-year sovereign papers were fixed at 7.59 per cent. Nevertheless, despite yields on investment ascending, the sources said, double-digit coupons on G-secs were unlikely in the immediate future. "But we are not likely to see less than 6 per cent coupons in the future given the current trend of credit offtake," the sources added.

Despite the improved investment earnings, none of the insurers are slackening up on cutting underwriting losses. Most of them are using the profits earned from investments this time for strengthening their capital and shoring up solvency.

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