The Hindu Business Line : Govt seeks higher pay-out from PSU insurers

The government has sought higher dividends from the four non-life insurance companies this year, in view of the large profits they have made from the equity markets.

Last year, the four companies together had paid dividends in excess of Rs 540 crore on their combined paid-up equity of Rs 550 crore. This was after booking investment profits of over Rs 2,000 crore through sale of equities. This yeareach of them is expected to earn investment profits of close to Rs 800 crore.

This would be the second year that the insurers would be paying dividends to the government after the transfer of stake from General Insurance Corporation.

The Finance Ministry’s demand for a slice of the profits comes close on the heels of the reforms that have been put in place by the Insurance Regulatory and Development Authority of India. The reforms included moving all third party losses into the India Motor Insurance Pool. Accordingly insurers are also expected to improve their underwriting margin close to about 3 per cent . The improvement in operations of the four companies – New India Assurance Company Ltd, Oriental Insurance Company Ltd, National Insurance Company Ltd and the United India Insurance Company Ltd – had resulted in at least two of them becoming compliant with the Section 40c of the Insurance Act of 1938, last year itself. This section caps management expenditure to 19.5 per cent of the gross premiums. The components include wages, dividends and commission payouts. Besides, the four insurers have also fully amortised the expenditure on the two rounds of the voluntary retirement schemes, the officials said.

The insurers are not comfortable with the Finance Ministry’s dividend demand. The officials said that they have used profits earned through the equities trading to beef up their general reserves. This had helped them meet the regulatory solvency margin (the excess of capital and asset values over the insured liabilities) of 150 per cent and at the same time sustain their growth in an intensely competitive market. The increased capital had also helped to improve retentions and reduce reliance on expensive cross border reinsurance, the officials said.

Besides, the government was yet to allow the insurers to go ahead with their capital raising proposals. The four PSUs had sought additional capital for sustaining their growth, either in the form of tier two debt as in the case of banks or through equity floats. The sources said high dividend demands meant that their capital (paid up equity and general reserves) would weaken. This was particularly at a time when the general insurance coverage was barely 0.5 per cent of gross domestic product, as against the Asian average of nearly 7 per cent. Besides, higher dividend payouts would imply the management ratio was likely to be breached.

More Stories on : General Insurance | Outlook | Dividend Announcement

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page