Chola MS General Insurance Company (Chola MS), is a joint venture between $4.4-billion Murugappa Group and Mitsui Sumitomo Insurance company, the company is in its 10th year of operation in India. After achieving a gross written premium (GWP) of Rs 1,350 crore, the company has set a target of Rs 2,500 crore GWP in two years and Rs 150 crore operating profit.
In an interview with T E Narasimhan, Chola MS General Insurance's Managing Director S S Gopalarathnam said that in order to support the target, the company is planning to raise around Rs 75 crore from the existing promoters through rights issue and there is also a possible that the Japanese partner may increase its stake in the company, subject to the Insurance Bill.
Gopalrathnam also said that the company shall strive to achieve a market share of around 3.5% and be amongst the top five insurers in size and top three in terms of profitability by 2014-15. The following are edited excerpts from the interview:
Q. How has the journey so far been for the company?
A. It was an interesting one and also a difficult time for the industry as a whole.
The industry went in to de-tariffication in motor and property lines on January 1, 2007, this resulted in a price war in the de-tariffed LOB’s, which resulted in discounts touching 90% in property lines and motor going to 50%. This resulted in higher loss ratio and lower profit margins for all players.
Moreover under Motor Third Party Pool (TPP), started on April 1, 2007 losses had to be distributed to all the general insurers based on the market share. This resulted in all general insurers absorbing huge losses - to the tune of nearly Rs 14,000 crore in five years.
Despite such difficult times, we managed to grow at a CAGR of over 65%. The numbers which we achieved is rare in the industry in the 10-year time frame.
Q. What were the growth drivers till now? And going forward what will the growth drivers be?
A. The company over the years has given thrust to retail segment with major volumes coming from motor, health and rural segments, which constitute 84% of our volumes.
Going forward, the major thrust areas for Chola MS would be health and commercial, retail health.
The new motor TP pricing has been put in place, this would mean TP prices getting revised annually across all classes of vehicles. It would help non-life insurers lower the motor TP losses.
The Ministry of Finance has given a direction to all PSUs directing them to curtail the discounts across LOB’s. This would slow down the price war and lead to risk based pricing in the market.
The dismantling of motor pool with effect from April 1, 2012 means that each company will have to manage this claims ratio more efficiently and will not be affected by the market inefficiencies in claim settlements.
Q. What is your GWP target by 2014-15? To achieve this target how much additional capital infusion would be required?
A. Last year Chola MS clocked Rs 1,350 crore GWP and by 2014-15 our target is Rs 2,500 crore. To achieve this we need an additional capital of RS 75 crore to meet the regulatory norms on a GWP of Rs 2,500 crore.
In terms of market share the company shall strive to achieve a market share of around 3.5% and in the next five years 5% as compared to 2.5% now and be among the top five insurers in size and top three in terms of profitability by 2014-15.
Q. How the money will be raised? How much will the promoters infuse?
A. This will be contributed by the existing promoters in equity capital through rights issue.
Q. Considering that the Insurance Bill is on the cards, will your foreign partners increase stake in the company?
A. This is a likely scenario.
Q. What are the chances that the company (or) group will look at a life insurance company or a health insurance company?
A. As this is a shareholder subject, I will not be able to comment.
Q. What is Chola's invested asset base at present and to what level will it be increased? Which are the sectors you are bullish about and feel risk?
A. We are planning to increase the invested assets base by 33% to Rs 1,800 crore in FY13 from Rs 1,350 crore in FY12. These investments have yielded around 8% return on an average.
As per the norm, of the total investments, 45% are government regulated, while 30% will be on government securities, 10% in infrastructure space and 5% is in housing sector.
Our equity exposure is less than 1% of our total portfolio.
