The Hindu Business Line : Private insurers cut 2-wheeler exposure

They had entered the business on the strength of historical data which had revealed low claims ratios, which indicate the payouts as a percentage of the premium collected.

Acceptable ratios in the industry are 70 per cent, inclusive of both own damage and third party liabilities.

However, during the last few months, the two-wheeler business had virtually bled the insurers.

Barring those companies that have arrangements with banks and manufacturers, even policy renewals are expected to undergo reviews, sources said.

Claims from the sector are mostly in the form of own damage. As a result, the claims ratio of own damage alone was in excess of 80 per cent. This ratio is perceived as too high for the sector. If third party liabilities were included, the ratios would be well above 100 per cent, the sources said.

No reinsurance support

What also made the losses unsustainable was that the motor vehicle business does not have any reinsurance support. The entire loss therefore would have to be absorbed directly into their respective balance sheets.

The balance sheets of the insurers are under pressure. In fact, the sources said, some of the general insurers are likely to end the current fiscal with a red-lined profit and loss account due to the large claims. The losses come at a time when some of them had expected to break even or even earn some small profits this year after five years of operations.

Solvency margins squeezed

The underwriting losses had provoked some of them to sell a part of their equity investments. However, even the profits from equity sales are unlikely to be sufficient to comply with the tight solvency margins prescribed by the Insurance Regulatory and Development Authority.

Currently, the solvency margins prescribed by the regulator are 150 per cent. This implied that the value of the assets and the capital would have to be at least 150 per cent above the insured liabilities.

According to the sources, several companies are likely to fall short of this margin by the end of the year.

This deficit in the solvency is likely to arise due to the losses and also on account of depreciation of some of the mandated investments. Government securities, for instance, had depreciated in value due to hardening yields.

To offset these losses, joint venture partners would be left with few options other than bringing in more capital to shore up the insurance companies and comply with the solvency margins. Recapitalisation would also be required to sustain the growth momentum, the sources added.

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