Non-life insurers raise Rs 2,181 crore through hybrid bonds

Non-life insurers raised Rs 2,181 crore in fiscal 2017 through hybrid bonds, a report said.
Out of this Rs 1,166 crore was raised in March alone by four non-life insurers, it said.
As many as seven of them raised Rs 2,181 crore in fiscal 2017, and more issuances are on the cards with non-life premium growth expected to be buoyant this fiscal, a study by the credit rating agency Crisil said here today.
The first hybrid bond issuance was in July 2016, and since then seven non-life insurers have tapped the debt market, it said.
Subordinated debt issuances, or hybrid bonds have emerged as a major source of growth capital and higher solvency ratio cushion-for non-life insurers, it said.

In December 2015, Irdai allowed insurers to raise non-equity forms of capital such as subordinated debt or preference shares, which qualify as regulatory capital, and help improve the solvency ratio of insurers.

Crisil has rated five issuances thus so far aggregating Rs 2,008 crore, which have been placed at competitive yields.
"Subordinated debt issuances have emerged as a very good alternative to equity as they enable insurers to raise capital at an optimal cost," Gurpreet Chhatwal, president, Crisil Ratings said.
"Hybrid issuances will gain impetus given buoyant growth prospects for non-life insurers," he added.
In fiscal 2017, non-life insurers registered a premium growth of 32 per cent driven by a four-fold rise in crop insurance premiums because of the Pradhan Mantri Fasal Bima Yojana.

Though premium growth will moderate in fiscal 2018, it will still be strong at around 18-20 per cent aided by a significant hike in motor third-party premium, price correction in the group health segment, and increased penetration in the crop insurance and retail segments.
According to Crisil, solvency ratios of non-life insurers are expected to improve because of a change in the way solvency margin is calculated.
Irdai has recently revised the factor used to compute solvency margin for crop insurance to 0.5 from 0.7, and extended the time-frame to recognise government dues in available solvency margin to one year from six months so as to enable capital optimisation and improve insurance penetration.

This will result in 10-15 basis points rise in the reported solvency ratios of non-life insurers with sizeable exposure to the crop insurance business, it said.
Crisil's rating methodology entails rigorous evaluation of the financial strength of the insurer and extent of cushion in solvency ratio over the regulatory minimum.
"For rating subordinated debt instruments, the extent of cushion in the solvency ratio that an insurer intends to maintain over and above the regulatory requirement on an ongoing basis is considered a critical factor," Krishnan Sitaraman, senior director, Crisil Ratings said.