While crop, motor losses impact general insurers’ books, protection products pull up life insurers’ profits
For the insurance sector, the quarter gone by was a mixed bag in terms of earnings.
Rising claims in third party motor insurance and crop insurance hurt underwriting profits of general insurance companies in the March quarter. On the other hand, life insurance companies rode on protection products to report better margins and an improved profitability.
Underwriting losses, which refer to premiums earned versus claims paid out, are a true reflection of the financial strength of an insurance company.
If the underwriting loss is 150 percent, it means that for every Rs 100 collected as premium, Rs 150 was paid out as claim. If the figure is below 100 percent, it means that an insurer is making an underwriting profit.
Crop, health insurance drag down financials
Among general insurers, state-owned New India Assurance posted a net profit of Rs 335.96 crore for the March quarter. The insurance company's gross written premium increased 15.3 percent year-on-year (YoY) to Rs 26,554 crore.
However, the insurer reported an underwriting loss of Rs 2,525 crore for FY18 (compared to Rs 3,547 crore in FY17) driven by high claims in health and third party motor insurance. G Srinivasan, Chairman and Managing Director, New India Assurance, said that the focus will be to reduce the loss ratios by correcting prices further.
Private sector player ICICI Lombard General Insurance posted an 18 percent year-on-year rise in its March quarter net profit to Rs 211.87 crore. While the private insurer’s gross direct premium income (GDPI) increased by 10 percent to Rs 2,926 crore in Q4FY18, it posted an underwriting loss of Rs 9.6 crore for the quarter under review.
In the post-earnings conference call, Bhargav Dasgupta, MD & CEO, ICICI Lombard General Insurance, said that the underwriting performance was impacted by losses in the crop insurance segment, especially those arising from kharif crops. Crop insurance saw a 135 percent loss ratio.
Loss ratios plummet
Loss ratios in the crop insurance segment are estimated to be around 140 percent, which means that for every Rs 100 collected as premium, Rs 140 would have been paid out as claims. This is because crop insurance is closely linked to weather-based anomalies. Any unfavourable change in weather could result in either a shortfall in yield or destruction of crops.
Also, the practice of offering discounts to retain corporate clients has cost insurers dearly. Though industry-wide loss figures have contracted, there is still room for improvement.
Protection business improves margins for life insurers
On the life insurance front, protection plans have been a boon, helping companies improve their margins and overall profitability.
For instance, private life insurer HDFC Life Insurance posted a 40.4 percent year-on-year rise in its net profit for the quarter ended March to Rs 346.86 crore. The company's new business premiums for FY18 grew 32 percent to Rs 11350 crore on the back of a strong growth in the protection business.
Amitabh Chaudhry, MD & CEO, HDFC Life said that protection products tend to have higher margins and that was one factor that led to an increase in margins. On the products front, he said that the company has actively tried to keep the share of unit-linked insurance products (ULIPs) in its overall business under check.
Capitalising on an increase in premium income, SBI Life Insurance posted a 13.4 percent rise in its March quarter net profit to Rs 381.2 crore, compared with the same quarter last year.
The private life insurance company posted a 27 percent year-on-year rise in its annualised premium equivalent (APE) to Rs 8,540 crore in FY18. SBI Life said that this growth was driven by an increase in new business premium from individuals, generated through bancassurance and the agency channel.
Some insurers took a hit on their bottom line, particularly because of strain stemming from new business. ICICI Prudential Life Insurance's standalone net profit for the March quarter declined 16.6 percent year-on-year on account of higher strain from new business.
In an interaction with Moneycontrol, Sandeep Batra, Executive Director, ICICI Prudential Life Insurance, however, said that there was a 71 percent growth in the annualised premium equivalent (APE) of its protection business, resulting in the value of new business (VNB) growing by 93 percent to Rs 1,286 crore in FY18.
"Savings and protection are two distinct opportunities and we remain focused on them. However, the protection segment could grow at a faster pace given the under-penetration," Batra said.
New business strain refers to the acquisition costs incurred by an insurance company over and above the premiums collected by it, in the initial years of the business being written on its books.
Private insurers beat LIC in premium growth
In absolute terms, private sector companies beat Life Insurance Corporation of India (LIC) in terms of growth in new premium collection. LIC collected Rs 1.34 lakh crore of new premiums in FY18, 8 percent higher than in the last fiscal year. Private life insurers, on the other hand, collected Rs 59,314.55 crore in FY18, 17.1 percent higher than in FY17.This was on account of the growth in both new business as well as a rise in the profitability of the business. New business premium grew 20 percent year-on-year. Renewals rose because of a rise in 13th month persistency numbers for private insurance companies. Detailed data for LIC has not yet been made available.