High Expenses, Claims stopping us from making underwriting profit

Antony Jacob lays down the reins of Royal Sundaram shortly, to take up a new assignment with Royal & Sun Alliance Insurance Group.

 Having shepherded the joint venture between Royal Sun Alliance and Sundaram Finance since inception, he takes some pride in leaving on a relatively high note.

 The company posted 144 percent increase in net profit to Rs 21 crore in 2006-07.

 Antony was recently promoted as Regional Finance Director (Asia and Middle East), Royal & Sun Alliance Insurance Group and will now be based in Dubai.

 However, he will continue on the board of Royal Sundaram and retain his link with the Indian operations that he handled so far.

 In an interview to Business Line, Antony reviewed the performance of the last fiscal and the issues thrown up by changes in the industry. He predicts an interesting time ahead as a freed market starts differentiating players.

 

How has the company done so well last fiscal?

 The performance stems largely from certain initiatives taken during the last few years that have started yielding results. This was in spite of another difficult year of claims.

 In 2005-06, we had the Mumbai floods. In 2006-07, we had the Surat floods. At one stroke we had Rs 15 crore of gross claims.

 Despite being a catastrophe-hit year, we managed it largely because of good claims management and our risk management capability. Of course, good expense and investment management have complemented this.

 

Have you made an underwriting profit?

 No. We are almost there. Our underwriting losses have come down from about Rs 11 crore in 2005-06 to about Rs 5.5 crore last year.

 

What was the contribution of investment income?

 Our investment income was Rs 31 crore compared to Rs 21 crore earlier. This was due to a combination of better yields and higher funds under management.

 

Didn't the rise in interest rates affect your investment portfolio?

 Our investment strategy has been cautious. What is important, when interest rates change, is the average duration of the investment.

Our average duration is quite low. This protects us from fluctuations that have an impact on the investment. Our average duration is in the region of 1.25-2 years.

 

What's stopping you from making an underwriting profit?

 It is a combination of relatively high expenses, especially marketing expenses, and claims. But losses are coming down and we are close to break-even.

 

Would your company have breached the statutory limit on management expenses again?

In the initial years, most companies in the world would breach the limit. We may be marginally better this year. But the IRDA is aware of this and has given a waiver for companies at the start-up stage.