New Delhi: The Oriental Insurance Company Ltd, India’s second largest general insurer by premium collections, registered a net profit of Rs497.27 crore in 2006-07, a jump of 75.15% over Rs283.91 crore last fiscal.
The rise in net profit of the state-owned insurer came largely by reducing expenditure and by improving investment yields. Oriental made a loss in its core business of underwriting risks, which was more than offset by other factors.
Most general insurers make underwriting losses, partly on account of a history of price controls on key business such as motor insurance.
The ongoing financial year 2007-08 may turn out to be a challenging one for the industry as premia on traditonal money earners such as fire and engineering businesses are expected to fall as the regulator, Insurance Regulatory and Development Authority (IRDA), plans to further loosen pricing controls in September. Insurers are expected to drop premia rates to grab market share, said Oriental executives.
“There would be some pressure in underwriting profit (in the current year),” said M. Ramadoss, CMD Oriental Insurance, on the likely impact of a fall in fire and engineering premia.
“Basically, I would read it as a cautious alert rather than a pessimistic view of the future. A price fall now will bring in more efficiency in the industry,” said Sanjay Aggarwal, national industry director, financial services, at consultant KPMG.
The fall in premia of these businesses would be partially offset by a rise in premia of health insurance policies, traditionally a loss making portfolio for Oriental.
“Cross-subsidy of health insurance will go,” said Ramadoss on the force driving health insurance premia upwards. Health insurance policies have been traditionally cross-subsidized by the profits on fire and engineering businesses in a market characterized by price controls. With the control regime being gradually dismantled pricing is likely to be decided by market conditions in individual businesses such as health and motor insurance.
According to the company statement the gross premium collected in 2006-07 was Rs4,020 crore, higher by 11.4% over the previous year -- the highest among the four state-owned general insurers in India. The gross premium for the industry was Rs25,002.45 crore, higher by 22.37% in comparison to the previous year.
In 2006-07, Oriental’s performance was marked by a 11.34% drop on-year in management expense to Rs754.22. The drop was because wage arrears, part of the previous year’s expenses, did not have to be paid in 2006-07. Consequently, Oriental’s management expense as a proportion of gross premium was 18.76%, the first time it has been within the ceiling of 19.5% expense ratio mandated by IRDA.
The aggregate investment income during the year was Rs1,160.10 crore, higher over the previous year by 3.81%. The company’s investment yield in 2006-07 rose to 9.24% from the previous year’s 9.02%.
Oriental’s board of directors has decided to pay the government a dividend of Rs100 crore in 2006-07 as against a dividend of Rs50 crore in the previous year.
(With inputs from PTI)