The second wave of COVID-19 and the looming threat of the third wave has severely hit large private life insurers, prompting them to shore up their provisions.
The two largest private insurers ICICI Prudential Life Insurance and HDFC Life Insurance have set aside additional provisions for COVID-19 claims.
HDFC Life Insurance has set aside an excess mortality reserve of Rs 700 crore created at the balance sheet for potential adverse mortality. This reserve is over and above the policy level liabilities calculated based on the applicable IRDAI regulations. This was in addition of Rs 165 crore of the provisions.
The company's solvency position remained at 203 percent in Q1 against the statutory minimum requirement of 150 percent.
In a report, Motilal Oswal Financial Services said quoting the HDFC Life management explained that peak claims during the second Covid wave were about 3-4 times of peak claim volumes in the first wave.
"The claims are still elevated compared to pre-Covid levels but are declining from as high as ~300 claims a day in Q1FY22 to now ~200 claims a day as the spread of the pandemic tapers," said the Motilal Oswal report on HDFC Life.
ICICI Prudential Life Insurance posted a consolidated net loss of Rs 185.29 crore for the June quarter (Q1) on COVID-19 claims and provisions. The insurer had posted consolidated net profit of Rs 286.86 crore in the year-ago period.
Due to COVID-19 claims, the insurer is carrying Rs 498.29 crore as provisions for such claims at the end of the June quarter. In its investor presentation, the insurer said that it had Rs 1,119 crore of COVID-19 claims in Q1. Net of reinsurance the claims were Rs 500 crore.
It added in its investor presentation that the Q1FY22 net claims plus provisions held at June 2021 covers five times the net claims in FY21.
Moneycontrol had reported earlier how there is a mismatch between actual deaths and insurance claims. As per the RBI's financial stability report life insurance received 22,205 COVID-19 death claims worth Rs 1,644 crore during FY21.
Fears of third wave?
Motilal Oswal said in its report on HDFC Life that the rise in additional reserves is based on current expectation of extra claims to be received in future.
"HDFC Life Insurance saw higher COVID-19 claims and settled gross claims of Rs 1,600 crore (over 70,000) as claims during the second COVID wave have been 3–4x the peak claims seen during the first wave," the report said.
On ICICI Prudential Life Insurance, the report said that the insurer settled ~ Rs 1,120 crore in total claims on account of the pandemic in Q1FY22 (a 3.2x increase over FY21). The report added that it made provisions of ~ Rs 170 crore during Q1FY22.
As of 8 am on July 21, India recorded 42,015 new COVID-19 cases and 3,998 deaths in the previous 24 hours. The total cases stood at 3.12 crore and total deaths stood at 4.18 lakh.
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