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C. Shivkumar

Bangalore, Oct. 19 Bucking the turbulent trend in the financial markets, the four public sector insurance companies have made large profits in equity trading in the first six months of the current year.

Sources said that the four PSU insurers sold some of their equity holdings, including in some blue chips. In the process, the four non-life insurers — New India Assurance Company Ltd, Oriental Insurance Company Ltd, National Insurance Company Ltd and United India Insurance Company Ltd — have booked profits of anywhere between Rs 250 crore and Rs 300 crore during the period.

The sources said that the funds would be added to the net worth and used for beefing up the capital of the respective companies for further increasing their solvency margins. Under the current guidelines, prescribed by the Insurance Regulatory and Development Authority (IRDA), insurers are expected to have a solvency margin of 150 per cent.

The insurers have solvency margins in excess of 200 per cent. The solvency margin is the excess of capital and value of assets over the insured liabilities.

Insurers’ sale of equities had been driven by the pressing need for capital requirements to sustain a 15 per cent growth in business. Currently, equities are taken at book value for solvency purposes.

Consequently, the sources said, that one of the methods devised for improving solvency was to book profits by selling equities and increasing the general reserves.

However, none of the insurers is currently permitted to trade in their debt portfolio.

Even the Government debt portfolios of the insurers are currently valued at book value or acquisition cost. As result, insurers’ solvency was largely understated, the sources said. If some of the investments are allowed to be marked to market, solvency ratios of the PSU insurance companies would undergo a change, the sources said.

Insurers have already approached IRDA for permission to trade in debt securities. The Oriental Insurance Company’s Director and General Manager (Finance), Mr Sanjeev Chanana, said: “We have sought IRDA permission to trade in debt. That approval is yet to come.” General insurers are expected to invest a minimum of 20 per cent in Central Government securities and at least 30 per cent in State Government securities of their investible corpus.

But most insurers have played it safe and have preferred to park the bulk of their corpus in Government securities as a measure to remain liquid and stay derisked. Only about 25 per cent is parked in approved securities that include equities.

But sources said that some of the PSU insurers had also switched from the mutual fund investments, anticipating the market downturn,to bank certificates of deposit and tier-two bonds.

Banks are currently offering up to 11.9 per cent on one year CDs and up to 11.5 per cent on tier-two bonds.

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