The Hindu Business Line : PSU general insurers book profits for 2006-07

Taking advantage
Profits were expected to be in excess of Rs 300 crore for each of the four PSU general insurers
The profits through equity sales would be used to augment capital

Bangalore April 26 Public sector general insurers have booked large profits for the third consecutive year for the financial year March 2007 by offloading some of their equity investments.

Sources said that profits were expected to be in excess of Rs 300 crore for each of the four PSU general insurers — New India Assurance Company Ltd, National Insurance Company Ltd, United India Insurance Company Ltd and Oriental Insurance Company Ltd. The profits would help in offsetting their underwriting losses.

During the last financial year, the insurers had taken advantage of the bull run in the equity market, booked profits of over Rs 400 crore each to buffer underwriting losses. But, this year, the sources said that the insurers would be incurring depreciation on their fixed income portfolios, with the hardening of yields. The 10-year yield to maturity was 7.94 per cent as on March 30, up 45 basis points over the previous year.

The depreciation would not, however, impact the solvency ratios, they added. The prescribed solvency margin by the Insurance Regulatory and Development Authority (IRDA) is 150 per cent. (Solvency margin implies the value of the assets and capital over the value of insured liabilities).

The profits through equity sales, the sources said, would be used to augment capital. The increase in the net worth, as a result, would also help neutralise the deterioration in the solvency due to depreciation of fixed income investments.

Besides, they said the impact of depreciation would be minimal on non-life insurers, on account of the pattern of investments in fixed income securities.

The sources said, like banks, insurers had also moved to short-end securities for liquidity purposes. The average maturity of some of the fixed income securities of the insurers was only about 3 years. In the case of private sector non-life insurers, the maturity was even shorter.

They said, in view of the large portfolio of third party risk covers, non-life insurers were required to be liquid. Consequently many of the insurers have parked funds in bulk deposits of public sector banks and money market mutual funds, to maximise returns on their investments. The liquidity of these investments also allowed them to fund claims as and when they are made. Despite large profits, the sources said, the bottom lines of the insurers are unlikely to be better than last year. This is because of the high retention profits, for sustaining the growth rate in the non-life insurance sector. PSU insurers are targeting to recover market lost to the private sector. PSU insurers' shares had dropped to 65 per cent in the first 11 months of the last financial year, from 74 per cent during the corresponding period of the previous quarter.

This year, the sources said, the motor pool becoming operational would also help in the efforts. The pool would take the load off the public sector insurers and contribute to making core operations profitable.

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