The Hindu Business Line : Non-life PSU insurers set for underwriting profits

Bangalore, Nov. 13 The slowdown in premium accretions notwithstanding, non-life insurers are expected to post underwriting profits during the current year.

This year premiums have dropped sharply, by almost 50 per cent across all sectors in view of the intense competition among the 13 non-life insurers after the migration to a deregulated environment.

During the first half of the current year, the growth has just been about 11.37 per cent over that in the corresponding period of the last year to Rs 13,903 crore.

Top officials of public sector insurance companies said they expected the premium growth to further slow down during the current year, despite the increase in coverage. The PSUs’ premium accretions were up just 3.9 per cent on a year-on-year basis.

Watershed year

Despite this, this year would likely be a watershed year for the four public insurers, officials said. This was because the underwriting business was estimated to go into the black for the first time in more than a decade.

The profits were also partly driven by the formation of a separate motor liability pool that took over third party motor liabilities. So far non-life insurers have been supported by profits from their investment books in the form of the coupon flows on investments in Government securities, dividends from equities and interest flows from participation in syndicated loans to some of the State Governments/public sector entities.

During this entire period, underwriting business has largely remained in the red, dragged down by claims from liabilities from motor third-party business. Claims ratios in the motor liabilities business was well over 150 per cent.

Sources said the underwriting profits were also largely on account of a likely drop in provisioning. . Normally insurers make provisions in their books for certain risks categorised as unexpired.

PSU insurers make provisions for such unexpired risks at about 5 per cent of their incremental premium accretions. Underwriting profits/ losses were reported only after netting for such provisions.

However, with the expected fall in premium accretions, provisions for unexpired risks are also likely to show steep drop unlike in the past. Part of the reason, the sources explained, was the absence of a defined standard for provisions under the current regulatory regime.

Pvt players’ strategy

Private sector non-life insurers were already making underwriting profits, by tightening claims payouts, and were working on claims ratios of about 75 per cent on a portfolio basis. PSU insurers have not yet taken the portfolio-wise claims ceiling route, the sources said. Consequently, underwriting profits expected this year were partly by default, and not necessarily by design.

Nevertheless, the underwriting profits also come at a time when the PSU insurers are planning to raise capital through the initial public offering route.