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Insurers’ underwriting losses rise to Rs 22,859 crore; three PSU players among worst hit

While state-owned New India Assurance contributed the highest net profit of Rs 1,418 crore, the sector — comprising 32 players — has been saddled with total losses of Rs 1,402 crore in FY2019-20.

Written by George Mathew | Mumbai | Updated: December 1, 2020 10:21:42 am
Underwriting loss occurs when claims are higher than the premium income of the insurance company.

The total underwriting losses of the insurance industry have surged by 4.4 per cent to Rs 22,859 crore in 2019-20, compared to the previous financial year, according to statistics compiled by GI Council, the official representative body of all domestic general insurers.

While state-owned New India Assurance contributed the highest net profit of Rs 1,418 crore, the sector — comprising 32 players — has been saddled with total losses of Rs 1,402 crore in FY2019-20.

This is primarily because the other three PSU general insurers — United India Insurance (UII), National Insurance Company (NIC) and Oriental Insurance Company (OIC) — have dragged down the financials of the sector with their huge underwriting losses during the period. “Motor, crop and health segments seem to have contributed to the underwriting losses,” said an insurance source.

Underwriting loss occurs when claims are higher than the premium income of the insurance company.

The industry had made a net profit of Rs 683 crore in fiscal 2018-19 as compared to a net profit of Rs 6,909 crore in 2017-18. The three PSU general insurers, with their large underwriting losses of Rs 14,443 crore, together have been responsible for the overall losses of over Rs 7,118 crore in FY 2019-20.

Explained

High combined ratio takes a toll on PSU insurers

Combined ratio is the most important profitability parameter of a general insurance company and a combined ratio below 100 per cent means the company is making underwriting profit. However, the three public sector general insurers, United India Insurance, National Insurance Company and Oriental Insurance Company, have been burdened with high combined ratios due to legacy issues.

NIC, with a combined ratio of 160.8 per cent and underwriting losses of Rs 5,759 crore, has suffered losses of Rs 4,108 crore, while OIC (141 per cent, Rs 4,197 crore) and UII (132 per cent, Rs 4,487 crore) have been hit with losses of Rs 1,524 crore and Rs 1,486 crore, respectively, in 2019-20.

Out of 20 private sector general insurers excluding the stand-alone health insurers, 11 players, led by ICICI Lombard General Insurance (with a net profit of Rs 1,194 crore) have succeeded in ending the year with some profitability, while out of six exclusive health insurers only two have made net profit during 2019-20.

Two-year old insurtech Acko General Insurance has witnessed the highest combined ratio (CR) of almost 210 per cent in the industry. It has been followed by other newcomers like Edelweiss (CR of 193 per cent) and Sachin Bansal-owned Navi General Insurance (CR 165 per cent). Shriram General Insurance, with 91 per cent, SBI General Insurance (93.5 per cent), Universal Sompo (96.5 per cent), Care Insurance (98.4 per cent) StarHealth Insurance (93 per cent) have earned the distinction of having low combined ratio in the industry.

There are very few companies (excluding Care) which have seen underwriting profits in FY 2019-20.

Combined ratio is the most important profitability parameter of a general insurance company and a combined ratio below 100 per cent means the company is making underwriting profit. While the three public sector general insurers have been burdened with high combined ratios due to legacy issues, the new entrants’ higher combined ratio can be attributed to their high business expenses and low premium and investment income in the initial years, analysts said.

The top three private sector general insurers, ICICI Lombard General Insurance (CR of 100.4 per cent and underwriting losses Rs 105.16 crore), Bajaj Allianz General Insurance (100.8 per cent, Rs 10.90 crore) and HDFC Ergo General Insurance (102.60 per cent, Rs 177 crore) have seen negative CRs and underwriting losses in 2019-20.

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