The Hindu Business Line : Pvt sector insurers’ H1 premium accretions rise

Shifting tack
To avoid pitched competition with public sector.
To ensure that tariffs are not driven to rock-bottom levels.
To offset the impact of drop in commissions.

Our Bureau

Bangalore, Nov. 7 Private sector general insurance companies sustained their growth momentum for the first half of the current financial year (FY08) with premium accretions rising 25.36 per cent over the corresponding period of last year.

According to data released by the Insurance Regulatory and Development Authority (IRDA), the growth was sustained largely by the aggressive push into retail lines of business that included health and home/household goods risk covers.

During April-September, premium accretions stood at Rs 5,441.51 crore as against Rs 4,340.56 crore during the corresponding period of the previous year. Public sector premium accretions for the same period grew only 3.9 per cent to Rs 8,143 crore. Shift to retail lines accelerated since the beginning of the deregulation from January this year. This was in order to avoid pitched competition with public sector and fears that tariffs could be driven to rock-bottom levels. Besides, the shift in focus was largely on account of private sector’s low level of capitalisation to take on big ticket business.

In fact, high level PSU officials said but for the regulator’s intervention late last month, tariffs on fire and engineering business, would have dropped by as high as 70 per cent over last year. The intervention ensured that tariff discounts were capped at 52.5 per cent over last year.

Ceding commissions

Besides, with reinsurers unhappy about falling tariffs, sources said private sector insurers faced new challenges by way of shrinking ceding commissions. The commissions ranged between 10-15 per cent for well-rated reinsurers, though they were higher for South Asian reinsurers that fell in the low rating scales.

The retail focus was also to offset the impact of drop in commissions and at the same time ensure under-writing business remained in the black, industry sources said.

Retail lines have low claims ratios. Low claims ratios implied higher retention of premiums and consequently greater profitability for the private sector. In fact, the industry sources indicate that the average claims ratios for the private sector was only about 60 percent. Public sector claims ratios were about 80 per cent.

Narrowing gap

The IRDA data also revealed of changes emerging in the insurer line-up. The gap between Oriental Insurance Company Ltd (OICL) and New India Assurance Company Ltd (NIACL) is beginning to narrow. The gross premium earned by OICL during the first half was Rs 1,990 crore as against NIACL’s Rs 2,667 crore.

OICL is the country’s second largest insurer. However in September, the premium gap between the two was under Rs 200 crore.

Among the private sector line-up, ICICI Lombard Insurance remained the leader with gross premium accretions of Rs 1,726 crore and within striking distance of the PSU United India Insurance Company Ltd.

ICICI Lombard, the sources said was clearly taking advantage of the retail and farm business lines and leveraging on the strength of its banc assurance network countrywide.