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Underwriting losses of non-life insurers up 68%

01 January, 2012

Underwriting Losses Of Non-Life Insurers Up 68% 
Place : Mumbai
Underwriting losses of non-life insurance companies galloped to Rs 9,969 crore in 2010-11, up from Rs 5,944 crore in the previous year. The financial year 2010-2011 witnessed a significant jump in underwriting losses at 67.72 per cent, compared with 11.64 per cent increase in 2009-10, statistics released by the insurance regulator, the Insurance Regulatory and Development Authority (Irda), reveal.
The increase in underwriting losses was observed across the board for both public and private sector non-life insurers, due to the provisioning requirements in the motor third-party liability segment, Irda's annual report 2010-2011 released this week revealed.
Ritesh Kumar, managing director and chief executive officer at HDFC Ergo General, said, "The non-life insurance industry suffered a loss of around Rs 3,600 crore just from the motor third-party pool, compared with Rs 600 crore in 2009-2010. This was the primary reason for the huge underwriting losses. Also, losses came from health insurance."
Insurance companies are supposed to generate profits from underwriting insurance policies and from investment income. Their chief business is insuring against risks for a profit, and one measure of success is whether there is money left after paying claims and expenses. This amount, if any, is their underwriting gain. To put it simply, underwriting loss means the insurer paid out more in claims than the premium earned from selling those policies.
The four state-owned non-life insurance companies, namely New India Assurance, Oriental Insurance, National Insurance and United India Insurance, registered a 66.24 per cent increase in underwriting losses at Rs 7,549.5 crore, while private insurers had underwriting losses of Rs 2,419.45 crore, an increase of 72.51 per cent in 2010-2011, compared with underwriting losses of Rs 1,402.48 crore in 2009-2010. This means that general insurers made a loss from their core business activity of insuring risks and had to rely on investment income to pay out claims.
"Motor pool losses will have to be provided in 2011-12. So, the pressure on profitability will continue. With Irda dismantling the motor pool recently, we will have to see how the situation pans out," added Kumar.
To ensure that the insurers do not deny a third-party motor insurance cover to automobiles (also called 'liability only cover'), Irda in 2007 had constituted the Indian Motor Third Party Insurance Pool. A third-party insurance cover is a necessary prerequisite for driving a vehicle on Indian roads. The premium rates are regulated by Irda, and, although, they were revised in April 2011, were not enough to take care of losses.
The country's largest general insurance company New India Assurance had the highest underwriting loss of Rs 2,643.34 crore in 2010-2011, compared with a loss of 1,719 crore in 2009-2010. Other companies, which reported high underwriting losses, were late entrants such as Future Generali, Universal Sompo General, Bharti Axa, Raheja QBE, L&T General and SBI General Insurance. Reliance General Insurance too witnessed an increase of 35.74 per cent in its underwriting loss to Rs 462 crore.
Last week, Irda dismantled the commercial third-party motor pool, and, instead, has decided to form a 'declined' pool, effective from April 1, 2012. Declined pool will be only for commercial vehicles (CVs) from April 1, 2012. The declined pool will be a risk-sharing mechanism for CVs where bad insurance risks were not being accepted for underwriting. These CVs can now avail of the mandatory cover. The move assumes importance, as it would free the pricing model and insurers would be able to price the risk based on claim history.