• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• BL Club
• Smartbuy
• Books
• Gallery

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

C. Shivkumar

Bangalore, June 15 Public sector insurers have outpaced private sector peers for the first time since the non-life insurance sector was thrown open.

Flash figures from the General Insurers’ Council indicate that the private sector growth was negative at 0.7 per cent in the first two months of the current financial year over the corresponding previous period. Public sector insurers grew 7 per cent during the same period. Premium collections by private sector non-life insurers for the period amounted to Rs 2,543.94 crore against Rs 2,562 crore the previous year. PSUs collected Rs 3,685.43 crore (Rs 3,454.78 crore).

Industry sources said that the deceleration was partly on account of the flight of renewal business from the private to the public sector. Big ticket business such as ONGC’s risk cover has gone to the PSU insurers. In April, ONGC had paid out the equivalent of $32 million as premium to a syndicate of domestic insurers led by United India Insurance (UIIL), up from last year’s $26 million. ONGC’s entire risk cover is reinsurance driven. At least 80 per cent of the risk is covered by reinsurance.

Among the companies that have taken a hit include the largest private sector insurance company ICICI Lombard Insurance Company Ltd. According to the flash figures, made available to Business Line, ICICI’s premium collection dipped 21 per cent over the corresponding previous period to Rs 631 crore from Rs 800.84 crore.

The sources said that one of the major factors that led to the compression of the private sector business was also the need to conserve capital and defend solvency.

According to the current IRDA guidelines, insurers are expected to maintain a solvency ratio of 1.5 times. Solvency margin implied the excess of capital and value of assets over the insured liabilities.

However, public sector insurers continued to be well capitalised. The four public sector non-life insurance companies’ paid-up equity plus general reserves is estimated at about Rs 18,000 crore for the last financial year.

This translates into a solvency ratio of over 2 times. This implies that they are better positioned to take on additional business. Further, the sources said that PSU insurers were also keen to move to the marked-to-market regime for asset valuation. Currently, all the PSU insurers value assets on a book value basis. A shift to the MTM regime, the sources said, would accordingly unlock further capital for the PSU insurers.

Moreover, in the past, the high growth trajectory of private sector reinsurance was sustained by buoyant cross border reinsurance markets. Reinsurers have now opted out faced with investment losses.

Besides, few are accepting the current low-risk pricing, though there have been few losses in the country or in the regions.

Reinsurance has also become less attractive, and expensive, since the hefty ceding commissions of the past have almost evaporated. Ceding commission is the spread a primary insurer earns by passing the liability to foreign or domestic reinsurer. This spread was as high as 20 per cent during the pre-deregulation period. The intense competition in the domestic market after deregulation and the global financial sector meltdown, have prompted global and even the domestic reinsurers to baulk at current risk pricing.

However, the sources said that even if there was a re-pricing of the fire and engineering segments, it was most likely to take place only at the discretion of the PSU insurers. PSU insurers however show little inclination in hiking premiums for the moment.

More Stories on : General Insurance | Performance

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

Copyright © 2009, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line