Pvt general insurers stay afloat despite flood claims

Was it only adequate reinsurance that helped private general insurers post profits in 2005-06 in spite of reporting one of the largest flood claims last year?

According to Dalip Verma, managing director, Tata AIG General Insurance, the domestic general insurance industry had over 48,000 claims totalling around Rs 2,900 crore on account of flood losses.

Though the losses were huge, private insurers, which are smaller in business operations, compared with public sector peers did not suffer huge losses as a major share of the risk was reinsured.

There are eight general insurers, of which Cholamandalam MS General Insurance, Tata AIG General Insurance, HDFC Chubb General Insurance, Iffco Tokio General Insurance and Reliance General Insurance are yet to report their results for 2005-06.

While most insurers say that is was only adequate reinsurance cover that helped them report profits despite taking a hit owing to flood claims in Mumbai, Bangalore and Chennai, it is only partially true.

Reinsurance was undertaken by insurers to mitigate losses arising from the risk by them. The key reason for insurers to have reported better numbers is: higher returns earned on investments.

A senior official with a private insurance company said the profits were garnered only through investment earnings and not underwriting profits (revenues made from selling insurance minus cost in terms of claims payout, agents commission and total cost).

It is interesting to note that most private insurers do not disclose their underwriting profits and only report the net profit, which includes earnings from investment, thus showing better results.

ICICI Lombard reported a net profit of Rs 50.3 crore in 2005-06 compared with Rs 48.35 crore the previous year. While gross claims of the company stood at Rs 768 crore, net claims the company had to bear was Rs 313 crore.

The premium income generated from selling policies was Rs 1,592 crore in 2005-06 compared with Rs 885 crore the previous year. Bajaj Allianz General Insurance has reported a net profit Rs 51.5 crore in 2005-06 compared with Rs 47.1 crore in 2004-05.

The company's underwriting profit had fallen by 45 per cent Rs 22.9 crore in 2005-06 from Rs 42 crore the previous year. Gross claims stood at Rs 750 crore and net claims was Rs 409 crore during the fiscal.

T T Srinivasaraghavan, managing director, Sundaram Finance, which holds 74 per cent in Royal Sundaram Insurance, said it was not only private insurers which were reporting profits based on investment earnings, but also their state owned peers have been doing it over the years.

Currently, in a tariff regime (the ceiling of premium fixed) insurers cannot charge the required premium depending on the risk covered and, therefore, underwriting profits are not much.

Royal Sundaram Alliance Insurance Co has reported 69 per cent a jump in net profit of Rs 8.6 crore for year March 31, 2006 compared with Rs 5.1 crore last year.

The company has registered a 37.6 per cent growth in premium income to Rs 461 crore for the year ending March 31, 2006 compared with Rs 335 crore the previous year. Sundaram Finance holds 74 per cent stake and the remaining 26 per cent is held by UK-based Royal & Sun Alliance.