The Hindu Business Line : Public sector non-life insurers comply with management ratio

Bangalore, July 16 For the first time this decade, public sector non-life insurance companies have complied with the statutorily prescribed management ratios.

The ratio is 19.5 per cent for non-life insurers under section 40C of the Insurance Act of 1938. The management ratio is a prescribed cost cap on wages, dividends and commissions. Till 2005-06 this ratio ranged between 23 and 25 per cent. But in 2006-07, PSU insurers have sharply pared it down to about 19.1 per cent. This was despite the high dividend payouts to its shareholders, entirely government.

Reliable sources said that the PSU insurers had largely managed to contain their costs during the year. However, in the case of private sector, the ratios are still well over 25 per cent with focus on business acquisition. For the private sector, this is the last year of the Insurance Regulatory and Development Authority’s six-year reprieve for complying with the management ratio. PSU insurers contained all the three components of management expenses during the financial year. The growth in business volumes also helped. Business volume growth was higher than the cost of acquisition, one of the crucial components of the management ratio.

Last year gross premiums grew 9 per cent over 2005-06. Wages grew less than five per cent during the year, the sources said. This was largely due to the absence of wage revisions in the industry since 2003. Besides, low inflation also ensured that the indexed components of salaries stayed at about 5 per cent. Moreover, the two rounds of voluntary retirement scheme effected in four PSUs had ensured a reduction in manpower.

The sources said that the profits realised from cost containment were ploughed back to bolster net worth. This had a favourable impact on solvency. As a result, New India Assurance Company reported a solvency ratio (the excess of the value of assets and capital over the insured liabilities) of close to 5 times, well above the IRDA’s prescribed figure of 1.5 times. For other PSU insurers like Oriental, it is about 2.2 times.