Combined ratio on GIC Re's international business is set to improve in second half of FY19.
General Insurance Corporation of India shares fell over a percent in morning on Thursday after global investment firm HSBC slashed price target to Rs 400 from Rs 421 earlier.
The current target price indicated that the stock could give 45.63 percent return from December 5, 2018's closing levels.
"The stock trades at 1.9x Mar-19 estimated price-to-book value (1.8x Mar-20 estimated) for a normalised return on equity of 14.2 percent," the research house said while reiterating buy call on the insurance company.
It further said the combined ratio on GIC Re's international business is set to improve in second half of FY19.
The state-owned reinsurer had posted a 64 percent year-on-year drop in its September quarter net profit at Rs 513.84 crore due to an underwriting loss impacting the company's books.
GIC's underwriting loss was at Rs 2,264.88 crore in Q2FY19, compared to an underwriting profit of Rs 703.74 crore a year ago.
At the end of H1FY19, the gross premium was up 11.1 percent YoY to Rs 27,117.40 crore. Of this, the share of the domestic market was 76.20 percent while that of the international market was 23.8 percent.
Its combined ratio rose to 110 percent in H1FY19 compared to 99.7 percent in the year-ago period.
In addition, the company has a direct exposure of Rs 870 crore in troubled infrastructure lender IL&FS through debt instruments. In its post-earnings analyst call, the reinsurer had said the total exposure is Rs 1,152 crore, including an additional Rs 282 crore from the terrorism pool of which GIC Re is a part.
GIC Re's Chief Investment Officer Shashikant More had said the defaults occurred in the last week of September and hence, no provisions were made. "We will make provisions in Q3 for IL&FS." GIC Re does not have any equity exposure to IL&FS.
At 10:14 hours IST, the stock was quoting at Rs 273.10, down Rs 1.55, or 0.56 percent on the BSE.Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.