The Hindu Business Line : `High expenses, claims stopping us from making underwriting profit'

Having shepherded the joint venture between Royal Sun Alliance and Sundaram Finance since inception, he takes some pride in leaving on a relatively high note.

The company posted 144 per cent increase in net profit to Rs 21 crore in 2006-07.

Mr Antony was recently promoted as Regional Finance Director (Asia and Middle East), Royal & Sun Alliance Insurance Group and will now be based in Dubai.

However, he will continue on the board of Royal Sundaram and retain his link with the Indian operations that he handled so far.

In an interview to Business Line, Mr Antony reviewed the performance of the last fiscal and the issues thrown up by changes in the industry. He predicts an interesting time ahead as a freed market starts differentiating players.

How has the company done so well last fiscal?

The performance stems largely from certain initiatives taken during the last few years that have started yielding results. This was in spite of another difficult year of claims.

In 2005-06, we had the Mumbai floods. In 2006-07, we had the Surat floods. At one stroke we had Rs 15 crore of gross claims.

Despite being a catastrophe-hit year, we managed it largely because of good claims management and our risk management capability. Of course, good expense and investment management have complemented this.

Have you made an underwriting profit?

No. We are almost there. Our underwriting losses have come down from about Rs 11 crore in 2005-06 to about Rs 5.5 crore last year.

What was the contribution of investment income?

Our investment income was Rs 31 crore compared to Rs 21 crore earlier. This was due to a combination of better yields and higher funds under management.

Didn't the rise in interest rates affect your investment portfolio?

Our investment strategy has been cautious. What is important, when interest rates change, is the average duration of the investment.

Our average duration is quite low. This protects us from fluctuations that have an impact on the investment. Our average duration is in the region of 1.25-2 years.

What's stopping you from making an underwriting profit?

It is a combination of relatively high expenses, especially marketing expenses, and claims. But losses are coming down and we are close to break-even.

Would your company have breached the statutory limit on management expenses again?

In the initial years, most companies in the world would breach the limit. We may be marginally better this year. But the IRDA is aware of this and has given a waiver for companies at the start-up stage.

I think these limits were put in long ago and we are planning to discuss the relevance of these limits imposed by Section 40-C of the Insurance Act.

If you look at the combined operating ratio, which is a combination of claims, commission and expenses (anything less than 100% is good), we were at 98 per cent last year and about 96 per cent this year. That positions us in the top three companies in the general insurance industry.

What about fresh capital?

We opened last year at less than Rs 140 crore because we had some accumulated losses, which have since been wiped out. Now, we are at about Rs 142 crore. We will review our capital requirements in October. We are OK until then. But insurance is a capital-hungry business.