The Rs 10,000-crore initial public offering (IPO) of New India Assurance will hit the market next month, helping the government garner much-needed resources under its divestment plan. G Srinivasan, its chairman and managing director, tells Abhijit Lele about the state-run general insurance company’s business strategy and steps to improve its financial profile. Edited excerpts:
Underwriting losses (deficit) saw a substantial rise in 2016-17. What contributed to this?
It was largely due to health insurance, and we have done substantial corrections in the last year itself. We repriced corporate policies, and this year in April have repriced the retail health portfolio. That is why we have seen an improvement in the claims ratio in 2017-18. It came down substantially from 115 per cent to 95 per cent by the end of June 2017. There has also been a rise in profit due to a control on expenses as well.
Any other product or stream where the underwriting deficit has been on the higher side?
Largely, the challenge has been in health and motor third-party insurance. As for health insurance, there has been substantial improvement. We have raised rates for motor insurance and brought down the loss ratio. Things are on the right track for the general insurance industry due to better performance.
Your combined ratio was high at about 118 per cent for the year ended March 2017. Could we see any improvement and how?
It has already come down to 110.6 per cent at the end of the first half. The adjusted combined ratio, which factors in investment income on technical reserves, was 104 per cent last year. It has now declined to 95 per cent. There is improvement in operating results largely due to a drop in the claims ratio and the expense ratio. You must keep in mind that in India, companies have huge technical reserves (policy holder’s funds) which generate investment income for us. What is relevant is the adjusted combined ratio. Globally, general insurance companies do not have much technical reserves, so for them what matters is the combined ratio. We see our adjusted combined ratio improving further to around 90 in a year’s time.
Turning to your international business, it contributed about 15 per cent of premium income. Which territory contributes the most?
One-third of our international business comes from the United Kingdom, where we have presence for the past 97 years. The international book is consistently profitable. In many markets that we operate in, we are a retail player. The share of the international business in the total pie will come down over a period as the Indian book is growing at a faster pace. The global business is growing at 5-7 per cent while the Indian business is growing at 18-20 per cent.
Looking at the sourcing business through banking channels, I see it contributed just about one per cent. What is strategy for it?
Corporation is giving emphasis on doing business through this channel. We have signed with some major banks like Canara Bank, Punjab National Bank, and Bandhan Bank in the past three months. We expect to triple the bancassurance business this year. Bancassurance is not a big line of business for the general insurance industry. For the general insurance sector as a whole, it is about 6 per cent. It is a substantial source for the life insurance industry with a 30-35 per cent share.