Ahead of IPO, National Insurance improved solvency ratio to 1.9 in March

In an effort to clean its balance sheet before launching an Initial Public Offer of equity (IPO), central government-owned National Insurance Company (NIC) has improved its solvency ratio substantially, from 1.26 in September 2016 to 1.9 in March 2017.

With the capital position improving, it has asked the government for approval to launch an IPO in the next financial year.

The solvency ratio indicates an insurance company’s financial capacity to meet both its short-term and long-term liabilities.  It identifies whether the company has enough buffer to settle all claims in extreme situations. The Insurance Regulatory and Development Authority (Irdai) has mandated a standard solvency ratio of 1.5. If the ratio goes below 1, the company cannot do business. A ratio in excess of 1.5 is seen as healthy.

To clean its balance sheet before IPO launch, NIC has exited 119 loss-making group health policies. More, subordinate debt issuance of Rs 895 crore and a quota share reinsurance arrangement for health and motor insurance policies with General Insurance Corporation has led to a better capital positioning.

Sanath Kumar, chairman and managing director, said NIC was able to bring its core claims ratio down to 85.98 per cent in 2016-17 from 90.53 per cent in 2015-16. However, there was a hike in the gross claims ratio, as the company absorbed additional Incurred But Not Registered (IBNR) claims of Rs 2,126 crore, with Rs 2,276 crore of motor third party IBNR left to be absorbed by 2019, by Irdai's order.

The combined ratio, which indicates a non-life insurer’s total outflow on its net earned premium, stood at 134 per cent in FY17, even higher than the 132.27 per cent of FY16. Premiums grew 18.8 per cent, from 6.5 per cent in FY16, with gross premium earned reaching Rs 14,282 crore.

 More, the net worth, on which there was more focusing before getting listed, grew nine per cent to Rs 9,544 crore. Hence, the profit after tax plummeted to Rs 49 crore, from Rs 150 crore in FY16.

The investment portfolio moved up from Rs 21,760 in FY16 to Rs 25,413 crore in FY17. However, investment income went down by Rs 20-30 crore.

Sanath Kumar said the aim was to bring down the motor and health insurance business from 77 per cent of the total to 72 per cent, the sectoral standard. Also, to reduce the presence in health and focus more on crop insurance, having already written Rs 840 crore of policies in the Prime Minister’s Fasal Bima Yojana. The loss ratio in the health insurance business is 114 per cent; in motor insurance, less than 100 per cent.