Money & Banking

HDFC Ergo growth will outpace the industry: ED

NS Vageesh Mumbai | Updated on January 09, 2018

Mukesh Kumar, Executive Director, HDFC Ergo

Crop insurance was a major contributor to the company’s improved performance

HDFC Ergo General Insurance saw its income grow 72 per cent last fiscal and expects to maintain that pace this year too.

In the first quarter of this fiscal, it grew at a similar rate and improved its market share to 5.25 per cent from 4.85 per cent at the end of March 2017.

Mukesh Kumar, Executive Director, said that the company will grow at a rate faster than the industry average.

The general insurance industry grew at 30 per cent last fiscal and is expected to continue at that rate this fiscal too.

He said HDFC Ergo had built sufficient scale now to handle competition and benefit from efficiencies achieved.

A key growth driver

Crop insurance was a major contributor to the improved performance last year, with the premium income from this segment more than trebling to nearly ₹1,800 crore in the last fiscal from around ₹500 crore in 2015-16. That was nearly a third of its total premium income in the previous fiscal.

He attributed the sharp growth in the crop insurance premium to the change in government policy of providing premium subsidy instead of claims subsidy, the jump in loans given to farmers (which ensured banks would help in selling crop insurance) and increase in coverage of loanee farmers.

While it was still early to judge the performance of this segment, Mukesh did caution that crop insurance was a volatile portfolio.

Although premiums were fixed based on rainfall data for the past 40 years, weather patterns across different geographies were changing rapidly and the losses could sometimes be heavy, he said.

The other major fast-growing segments were health and motor premiums.

The very low penetration of health insurance (just 3 per cent of the population has some form of health cover), and the high medical cost inflation will ensure that this portfolio grows through the next decade, he said. The right selection of risk will, however, determine profitability, Mukesh said.

Profitability measure

The combined ratio (a measure of profitability that takes into account claims and expenses as a proportion of premiums) for the general insurance industry has worsened to about 118 per cent.

Typically, the appropriate balance would be for a general insurance company to keep its claims at about 70 per cent and expenses controlled at under 30 per cent of premiums, he said.

Even if this combined ratio was kept at about 105 per cent, it would be possible to make up for it with investment income, but beyond that it would eat into capital, he said.

Mukesh said that the integration with the erstwhile L&T General Insurance Company (which HDFC Ergo acquired in September 2016 for ₹550 crore) was now complete at the operational level.

The relatively small size of the acquisition ensured that there were no major integration issues, he said.

The merger process will be complete after court approvals are obtained, Mukesh said.

Published on August 08, 2017

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