Long road ahead before PSU general insurers begin listing

M SaraswathyMoneycontrol

The Cabinet yesterday cleared propsoals for listing four public sector general insurers as well as the state-owned reinsurer General Insurance Corporation of India (GIC Re). While industry officials expect new benchmarks for pricing to be set up, they are also hoping that these companies set their balance sheets in order before they approach the capital markets. Investors will be watching out for a few key metrics before they bet on these stocks. For starters, solvency ratio, a metric which measures a company's ability to meet its debt obligations, will have to improve for all these GICs. National Insurance's their solvency ratio stood at 1.26 for the quarter ended September 30, 2016. Oriental Insurance, on the other hand, had a solvency ratio of 1.14. New India Assurance and United India Insurance have solvency ratio above the required limit of 1.5. New India reported solvency ratio of 2.04 while United India had solvency ratio of 1.56.

Reinsurance company GIC Re had the highest solvency ratio of 2.92 at the end of September 30, 2016.

Here, solvency ratio refers to total available solvency margin divided by total required solvency margin. The total required solvency margin as per insurance regulatory norms is 150 percent (or a solveny ratio of 1.5). This has to be maintained at all times.

The divestment of stake would also help in the much-needed capital infusion into the sector. The total paid-up capital of non-life insurers as on March 31, 2015 was Rs 11,504 crore. During 2015-16, the non-life insurers added Rs 1099 crore to their equity capital base. Public sector insurers did not infuse any capital.

Over and above this, underwriting losses also remain a concern. According to data from Insurance Regulatory and Development Authority of India (IRDAI), the underwriting losses of non-life insurance companies increased to Rs 14962 crore in 2015-16, from Rs 10576 crore in the previous year. The underwriting losses of public sector insurers increased by 54.42 percent to Rs 10839 crore in 2015-16 from Rs 7019 crore in 2014-15.

This is true especially for segments like fire, group health and motor third party where the claims paid are more than 100 percent of premiums collected. Industry officials said that the companies are partly to blame for this, since even after heavy claims, disocunts are offered to retain clients.

“Public sector insurers are bleeding heavily in the fire portfolio. But they continue to underprice the product at renewal to keep the client in their books. This is hampering their profitability,” said the head of underwriting at a mid-size general insurance.

As they get closer to listing, the focus will be to reduce these losses significantly, said public-sector insurance executives. GIC Re, meanwhile is on the safer side with better numbers. However, with a heavy focus on crop insurance, one bad monsoon could play havoc with their balance sheet, said sector analysts.