PSU general insurers face mark-to-market pain

Public sector general insurance companies are feeling the heat of the stock market slide, as their portfolios contain large "fair value change" accounts or mark-to-market investments, which are vulnerable to market downturns.

Although year-end figures of the state-run insurers, which control 60% of over Rs 28,000 crore general insurance market, are yet to be finalised, their investment income might not register gains as high they expected.

Industry sources indicated that the four companies — National Insurance, Oriental Insurance, New India Assurance and United India Insurance — have huge reserves, or what they internally call "family silver," but rely upon investment return to maintain solvency margins.

In fact, their investment portfolios sometimes compensate for relatively weaker underwriting performance.

Top officials of one PSU insurer told DNA Money that solvency is never an issue for the four companies.

But sources said that with the heavy discounting of premiums, profitability of the four firms could be strained. A decline in investment income would only add to their woes.

The Insurance Regulatory & Development Authority (Irda) had expressed concern that extensive price undercutting would impact solvency margins and directed all general insurers to file solvency statements on a quarterly basis.

The idea was to make the insurers focus on capital management and ensure that capital adequacy receives adequate priority when the companies chalk out future plans.

A recent report on global insurance by Moody-Icra said, "The capitalisation levels of public entities in general remain comfortable, supported by their investment books, which have benefited from large gains in their equity portfolios. By contrast, private insurers with much smaller investment portfolios and better underwriting results are less-dependent on investment return to maintain solvency margins."

Analysing the investment portfolios of India's top six insurers, the study says public insurers have fairly strong portfolios, which provide them with considerable liquidity and adds to their financial strength.

Source: Nandini Goswami/ DNA MONEY