High-loss health, auto covers contribute to PSU insurers' growth

High-loss health, auto covers contribute to PSU insurers' growth
Although PSU insurance companies stepped up growth this year, this was largely contributed by high-loss segments where the payouts exceed the premiums.
The four PSU insurers reported premium growth of 12 per cent for the first nine months of the current financial year. Private sector insurers grew only 8 per cent for the same period.
But highly placed PSU officials, who declined to be quoted, said the stepped up growth was largely from the health and automobile segments. Health insurance contributed to as much as 40 per cent of the PSU insurers' growth during the period. The auto sector contributed about 10 per cent of the growth, though private sector continued to dominate the segment. But it is in motor third party risk covers, especially commercial vehicles, where the public sector growth remained high, the officials said.
The high growth segments for the PSU insurers, the officials said, were not exactly profitable. The losses as measured by the combined ratio remained at about 130 per cent for health risk covers, both retail and group medical covers. The combined ratio is a measure of profitability of the insurance industry's core business. A ratio over 100 per cent implied the business acquisition/administration expenses and claims were well over the premiums earned. In the case of the automobile sector, the combined ratios continue to remain at over 150 per cent, with commercial vehicle third losses at over 200 per cent.
However, the sources said, the claims losses on their respective balance sheets had reduced after the third party pool began operations in 2007. This was because the losses were now being shared between all the general insurers, including private sector, who are also members of the pool. Losses for the PSUs though remain high, since they have the largest market share in the commercial vehicle third party segment sector.
Low loss sectors
The officials said private sector insurers' cautious growth in the high-loss segments stemmed from fears of bleeding capital. But capital constraints for the PSU insurers were also likely to mount this year, the officials said, given the current state of the profitable business — fire and engineering sector. Tariffs in these traditionally low loss sectors are still 80 per cent below the pre-deregulation levels. Besides, with reinsurance negotiations expected to be tied up over the next two weeks, the officials said there was intense resistance within the sector — public and private — against further undercutting risk premiums.
The resistance was also partly on account of the fear of weakening technical reserves. Currently, insurers are expected to have at least 50 per cent of their incremental premiums as provisions for unexpired risks. The sharp fall in tariffs have, in turn, reduced transfers to the technical reserves.
Low profits
Besides, the officials said, this year PSU insurers made reduced profits through sale of investments, unlike the last few years. This year, the officials said, PSU insurers' profits from investment sales were unlikely to exceed Rs 300 crore. PSU insurers had used this route to recapitalise, till last fiscal. Investments are currently recognised in the balance sheets at book value. Sale of the investments and booking profits on the same, however, improved the capitalisation, as the profits were used to bolster their general reserves.
With investment profits unlikely to improve in the coming weeks, PSU insurers sought additional capitalisation measures from the Government for supporting business growth ahead of the Budget on the lines of the banking sector.