High expectations raise risk for stocks of general insurance companies

Benefits of lower claims could get offset by subdued premium collection and fixed costs

General insurance companies have bounced back sharply on the bourses recently. ICICI Lombard General Insurance Company (ICICI Lombard) and New India Assurance Company (New India) have seen 37-50 per cent surge in their share prices since March 24, outperforming the 15 per cent rise in the BSE Sensex during the same period.

Expectations of strong demand for health insurance products amid coronavirus outbreak and higher profitability aided by lower claims is driving up investor sentiment. However, investors may have to tone down their profitability expectations, given concerns over premium collections and costs.

Avinash Singh, analyst at SBICAP Securities, says, “Claims