Listing will take seven to eight months: K Sanath Kumar

K Sanath Kumar, chairman and managing director of National Insurance spoke to Namrata Acharya

Kolkata-based National Insurance, third largest non-life insurer in India, expects to hit the capital market in the next seven to eight months. However, it faces challenges like a low solvency ratio, high exposure to risky portfolios and a falling market share. 

K Sanath Kumar, chairman and managing director, spoke to Namrata Acharya on the plan to address these in a competitive market. Edited excerpts:

How prepared are you for listing? 
 

There was an announcement on this for the sector in the previous Budget. So, some preparation was already in place. Recently, the Cabinet approved our actual listing and we have been told to start preparing. We are to follow instructions from the department of investment and public asset management. It might take seven to eight months to actually hit the market. 

What immediate gains do you foresee after listing? 

Since nationalisation, there was no fund infusion from the government in public sector general insurance companies, although we have been growing in double-digits (annually). We have paid-up capital of Rs 200 crore. This financial year, our turnover will be Rs 13,000 crore. With listing, we can grow faster. An IPO (initial public offer of equity) will give us stronger capital vis-a-vis the regulation. Second, it allows us to grow. Today, our growth is somewhat restricted due to capital constraints. Further, our performance would be under scrutiny of the market and that would drive efficiency. 

Your solvency margin is lower than the regulatory advisory of 1.5 per cent. 

Our solvency margin was 1.26 per cent as on end-March of 2016. This was arrived at after taking into account the need to clean up the balance sheet in view of the coming IPO. We are confident that by the time of an IPO, we will have a much stronger balance sheet. The advisory is 1.5 per cent and the minimum requirement is one per cent. If it is less than 1.5 per cent, we need to give our plan and timeline to reach that level. We have done so and the regulator has also given us some relaxation. Of course, we have to reach 1.5 per cent as quickly as possible but have three years to absorb past liabilities. We would like to complete it much before that. 

Could you throw some light on your investment portfolio?

Our net worth is close to Rs 9,000 crore. It is fair value and does not include real estate and brand value. The exercise is now on to arrive at the valuation. We have been representing to the regulator that our off-balance sheet strengths, like real estate and fair value, should be considered to some extent, if not fully, in calculating the solvency ratio. The new Indian Accounting System is also about to start, in 2018. With that, our assets will be more of mark-to-market (in line with current values), which is not the case now. 

National Insurance has slipped from number two to three in market share. Profits have also come down over the years. Why? 

The difference is narrow. Profits have come down as our largest profiles are (the) motor and health (segments). Both of these are loss-making. We are confident of doing the spread correctly. We are repricing wherever we have substantial losses. We will not venture into areas where we know there will be losses, like group health insurance policies. We are also trying to grow in more profitable areas like fire, engineering and liability.

 What is the percentage of health and fire in your overall portfolio? 

About 80 per cent of our portfolio. The sector average is 72 per cent and we’d like to move towards that. 

How has demonetisation impacted the business of general insurance companies? 
 

It seems to have affected two-wheeler sales; to that extent, we have been affected. By and large, we have not been affected by demonetisation. There has not been a major hike in bank credit. As a rule, when bank credit grows, so does the insurance sector. However, the segment has been growing substantially due to the Prime Minister’s Fasal Bima Yojana; this nullified the slowing in bank credit. We expect 15-16 per cent growth this year. 

What is your experience with the Fasal Bima Yojana? 
 

We have just entered the rabi season and claims are yet to come. The premium for us is close to Rs 700 crore. We hope it won’t be bad, due to a good monsoon. 

How big is the concern on underwriting losses? 

As on end-March 2015, the entire sector’s underwriting loss was close to Rs 10,000 crore. In 2015-16, it went up to Rs 15,000 crore. We expect things to change in the next couple of years. Motor third-party premiums have been slightly going up, which gives us some confidence that it will break-even at some point. A lot of price correction is happening in the sector. A lot of property insurance has already been corrected, by 10-15 per cent. In health insurance, this has taken place in the corporate health portfolio. Companies have learnt to work under more pressurised margins. 

The share of public sector general insurance companies have been shrinking vis-à-vis private companies. 

Their share has come down from 75 per cent to around 55 per cent. I don’t think that public sector companies are losing their competitive edge. They are still a very strong component of service delivery. 

Your expectations from the reinsurance market? 

We hope prices would harden a little bit but not much. But, there will be a lot of options for Indian insurers, as many global leaders in reinsurance have set up shop here.