Public sector New India Assurance Co Ltd (NIA), which listed its shares on the exchanges after an initial public offering (IPO) recently, did not set the market on fire and made listless debut. G SRINIVASAN, chairman and managing director of NIA, said the markets would take time to understand the sector which is new for them. In an interview with GEORGE MATHEW, Srinivasan spoke about competition, growth in the sector, crop insurance, motor and health insurance. Edited excerpts:
Shares of New India Assurance were recently listed at a discount after the IPO. Do you think it was rightly priced?
If you look at a company like New India Assurance, the pricing at which we went to the market is very reasonable. We filed for Rs 70,000 crore (market valuation) but we brought it down to Rs 64,000 crore after seeing the experience of GIC Re. Our networth, including fair value (excluding real estate), is about Rs 38,000 crore. The price book is only 1.7 times. Unfortunately, many of the analysts were not able to understand. I have not included real estate. If real estate is included, it’s (price book) less than one. Our real estate is worth around Rs 25,000 to Rs 30,000 crore. It’s a new sector. They may understand, but it might take a couple of quarters.
Has the entry of more than half a dozen foreign players into the general insurance segment made things difficult for you?
We were facing competition for the past 70 years. It’s not new. That phase is over. We were not losing market share in the past 10 to 12 years. We have increased our market shares in the past five years. Now, the market is also reasonably settled. There are some eight to nine well-settled companies. Then there are smaller companies which are trying to find market share. I don’t think the addition of newer companies is going to alter the situation in a big way. We were able to maintain our position. We have many strengths — financial strength, reach, customer base, etc.
How much growth are you expecting in the next 2-5 years?
We will maintain a growth rate of 18-20 per cent. There is a huge under-penetration. People are able to afford to pay insurance. This 18-20 per cent growth will happen in the normal course. The market will grow at that pace.
What has been your experience in the crop insurance business, which kicked off in a big way two years ago?
Last year, we had about Rs 1,000-crore exposure in the crop insurance segment. This year, we are planning about Rs 1,500 crore. It will increase gradually. Last year, our claims ratio was around 100 per cent. We had drought in one of the states — Tamil Nadu. So, we were impacted. This year, monsoon has been good. I expect the claims ratio to be better than last year. In any case, we do a large amount of reinsurance… 80 per cent is reinsured. We are not impacted by the volatility of better or bad monsoon.
Are you looking at further re-pricing of the health insurance business? Will you be able to absorb the losses in corporate health?
We have already done it. This year, we had done repricing in retail. Substantial repricing was done in the corporate segment. Corporate is not like retail. It also comes with some other business. There’s an element of cross subsidy in corporate healthcare which comes with other businesses. If corporate health business is not coming with any other business, we are not giving any reduction. We are charging the right price. But the element of cross subsidy has come down substantially.
Third-party motor insurance continues to make underwriting losses. What can be done to bring losses down?
We were about 160 per cent (losses) five years ago. Today, we are about 90-93 per cent. So, there’s substantial improvement in motor third-party insurance. We are waiting for the Motor Third Party Bill to be passed in the parliament… of course, there are many possibles. One is the increase in penalties for traffic violations, licensing being made difficult. On the insurance side, the time-limit of 6 months for filing compensation cases is positive. All these should help us to bring down third-party losses further.
Do you think that there will be a rise in third-party motor insurance in next April?
There will be some increase. It might not be very high. If the amendment gets passed and made operational immediately, definitely the loss ratio will improve and the price increase might come down. But, there will definitely be a decent price increase.
How big is your overseas operations? What are your plans on the overseas front?
The size of overseas operations is about 14 per cent. As the Indian business is growing faster, as a proportion, it will come down. The overseas business was Rs 3,200 crore last year. In Myanmar, we are trying to get into the special economic zone. We are also on the verge getting a licence in the Dubai Financial Centre… through which we will be able to operate anywhere and I can issue direct policies in Africa.
Will you increase your reinsurance business?
No. That’s not a focus area for us. We do about 10 per cent business in reinsurance and that will continue. We don’t want to be a major reinsurer.
What has been the impact of the goods and services tax (GST) on the insurance segment? Reinsurers of crop business were under GST.
There were some practical difficulties but now we are overcoming them. It’s revenue neutral for us. On crop reinsurance GST… we have taken it up with the government. We are not paying GST on crop insurance. It is not applicable on direct sales so it should not be applicable on the reinsurance side.