Future Generali's journey to survival

Conscious decision to prioritise bottom line over turnover

In the April to September period for financial year 2013-14, Future Generali India Insurance posted a Rs 26.5-crore net profit, compared to a Rs 27.7-crore net loss posted in in the same period of 2012-13. And, ever since, both on a quarter and a year-to-date basis, the general insurance company has posted profits.

Hence, when its proposed joint venture with L&T General Insurance was called off on Monday, 13 months after it was announced, not many in the sector were taken aback. Sources in the Future Group said this was primarily due to the fact that their general insurance venture was on the verge of break-even and had a good opportunity even as a standalone player.

At a time when a company in the general insurance segment takes six to eight years on an average to break even and become profitable, Future Generali is on the way to doing so in its sixth year of operations. A senior company executive said this was because they'd tightened their underwriting practices and exited unviable businesses.

“Posting profits is a good sign. We have been able to achieve this by getting out of businesses which were not viable. We have exited several accounts in the group health and property segment,” the executive said.

Group health is a segment where non-life insurance entities have been competing aggressively, offering deep discounts to retain clients and attract newer ones. “Future Generali India has learnt the lesson of not going after corporate accounts, at a time when the returns from this segment weren't sustainable. When large non-life players are cutting one another through discounts, this company has taken the right decision to step back, boosting its books,” said the chief executive of a broking firm who has dealt with several general insurance companies.

The company collected a premium of Rs 944 crore, up 10.4 per cent, during the first nine months of 2013-14 against Rs 855 crore in the same period a year before.

In March 2013, L&T, Future Group and Generali Group had signed a non-binding term sheet for the merger of L&T General Insurance and Future Generali India Insurance. This was a first of its kind merger in the sector. After the merger, L&T was to hold 51 per cent stake, Generali Group 26 per cent and 23 per cent was to be held by the Future Group.

For April-December 2013, the first nine months of that financial year, Future Generali India collected total premiums of Rs 929 crore, up 11.5 per cent over the same period in 2012. As against this, the non-life segment grew 13 per cent and private general insurers by 16.6 per cent.

“We took a conscious decision to not chase the top line (sales) but to aggressively guard the bottom line (profit). For the period ended March 2014, the company saw 14 per cent premium growth and this is in line with our plan,” said a company executive. The company says it expects a a profit of Rs 200 crore next year.

Sector insiders said there could be a marginal difference in the premium numbers of Future Generali vis-a-vis the sector but the company has been careful to not impact its profitability. In fire and miscellaneous insurance, the sole objective was to improve the operating profit. From a Rs 60.5-crore operating loss in miscellaneous insurance, these came down to Rs 16.5 crore. In fire insurance, from a Rs 1.5-crore operating profit, these became Rs 13.5 crore in the April to December period.

“We have ensured the profitability situation remains intact. That will be the key for the future growth path,” said a company official.