New India Assurance suffers R421-crore loss

Written by Sitanshu Swain | Mumbai | Updated: Jul 22 2011, 09:03am hrs
New India Assurance (NIA) has logged losses for the first time in its 90-year history. The countrys largest general insurance company notched a net loss of R421 crore in 2010-11, even after R2,329 crore investment income.

Higher claims in both domestic and international markets, one-time additional provision for wage hike, pension and gratuity of R315 crore and the provision of R456 crore to comply with the capital requirements on third-party motor business plunged the companys balance sheet into the red. Though earlier, it used to make underwriting losses, the large investment income always ensured that the company was in black.

NIAs claim ratio has remained at 100%, while the combined ratio has remained at 140%. The company has also provided over R1,000 crore for future claims during the year, as the Irda wants general insurers to make larger provision than what they have been doing thus far.

General insurance companies suffering net losses due to the sudden requirement of higher capital on account of third party motor pool has been the overall trend in 2010-11.

NIA board, which finalised the results last week, will neither pay any dividend to the government nor any incentives to its officials and the companys reserve has stood depleted by in 2010-11.

The companys large asset base has kept solvency ratio at 3%, which is quite within the industrys standard, said AR Sekar, financial advisor, New India Assurance.

The growth was quite comfortable, but the loss is purely due to one-time expenses like salary hikes, pension and gratuity a high amount for the third party motor business. The company also added over R1,200 crore to its investment portfolio during the year. But the fact that this is the first ever loss in the history of the company is quite hurting, Sekar said.

The company will definitely see a turn around in 2011-12. By end of the first half, the company will see a much better performance, he said

The companys investment portfolio has grown to R13,604 crore out of which equity portfolio (book value) is at R2,630 crore. NIAs net global premium had grown by 20% to R7,192 crore including R1,112 crore from the overseas markets. While the earned premium of the company for 2010-11 is at R6,473 crore, the net incurred claims are at R6,524 crore, thereby putting the underwriting losses of the company at R41 crore.

At present, the management expenses is over 30%. The company plans to seek Irdas permission on this, as the existing norms dont allow more than 17% expenses. According to Sekar, the company follows long term strategies in its investment portfolios. The company will focus on retail business, recruit more agents and add 200 micro offices in 2011-12.

The new Irda norms in 2010-11 had mandated the general insurers to provide a reserve of 153% up from 126% for their expected third party motor business from 2006-07.