FY24 could see some weakness before strong growth takes off in FY25: GIC RE CMD

General Insurance Corporation Reinsurance (GIC Re) is likely to miss the guidance on premium as well as combined ratio for the financial year 2024, said Chairman and Managing Director Ramaswamy N, while adding that FY2025 could be a strong growth year for the reinsurer.

While GIC Re’s stock has posted stellar gains in the current financial year, the reinsurer’s results have been weak in FY24. In Q3FY24, GIC Re’s premium growth and underwriting performance faltered, and its combined ratio shot up to 120% against 116% in the third quarter of financial year 2023.

On the other hand, the GIC Re stock price has jumped 260% in the last one year with the share price more than doubling in the third quarter alone. GIC Re has added ₹43,000 crore in market capitalisation in the last three months to cross a total market capitalisation of ₹82,000 crore.

Ramaswamy, however, expects the fourth quarter to be a strong one due to low catastrophe claims and a change in the accounting policy. The GIC Re chairperson expects its combined ratio to come down by 3-4% from the current 120% mark, which will be more or less close to or just slightly lower than the previous year.

The premiums in the third quarter were lower largely because of the domestic book and particularly in the crop insurance business, according to Ramaswamy. Pricing in the new crop insurance scheme became very aggressive, so GIC Re was uncomfortable. The reinsurer came out of two to three treaties, which impacted the growth in crop business and overall premium in the quarter. Ramaswamy added that exiting these treaties has positively impacted the bottom line for the company.

In an earlier interaction, GIC Re gave guidance of 5-6% in the net earned premium (NEP) for FY24. Seen against this, Ramaswamy said the growth may remain flat or marginally higher by 1-2% compared to FY23. For FY25, however, the reinsurer expects a 10% growth in net earned premium (NEP).

Speaking to CNBC-TV18, Ramaswamy said the growth for FY25 will be stronger, and he expects a strong business in the domestic book for FY25. Also, if GIC Re manages to secure a credit rating upgrade to A-, they will be able to write a much larger chunk of international businesses, he added.

The management expects the mix between international and domestic books to remain at similar levels. At present, the GIC Re gets about 31% of its total premium from the international book and about 69% of the total premium from the domestic book. The management expects GIC Re’s international book to grow by 1-2% and its domestic book by around 10%.

Ramaswamy believes that for FY24, the GIC Re would still post an underwriting loss on a year-on-year basis.

The combined ratio turned out to be another negative for GIC Re in the third quarter, as the reinsurer’s combined ratio shot up to 120% compared to 116% on a year-on-year basis. The company had earlier guided a combined ratio of 109% for FY24, but owing to the miss in the third quarter, it won’t be possible for the company to achieve the previously guided combined ratio.

Ramaswamy believes that GIC Re’s combined ratio for FY24 could be around 113%, which in FY25 could come down to 108%. Going forward, GIC Re would focus on cutting down the combined ratio by 100–200 basis points. On the more ambitious roadmap, GIC Re expects its combined ratio to reach 100% in the next five to six years.

Reinsurance treaties would be renewed in March this year and would be applicable starting in April 2024. The management expects its protection rates, also known as retrocession rates, to go up by 8–10% for FY25. It also expects a similar increase in the cession rates or the rates that it receives from insurance companies for FY25.

The company expects underwriting losses to be lower in large segments like agriculture and property. The underwriting losses will be reduced through a combination of withdrawals of loss-making treaties and also through an increase in prices.

On the government’s plan to divest its stake in GIC Re through an OFS to comply with the minimum public shareholding norms, Ramaswamy said that there has been no active discussion. However, the government is actively looking at the company’s performance and the response to its stock price.

The government has asked the company to engage with analysts on a more direct basis and at an increased frequency. According to Ramaswamy, the government needs to dilute a 10% stake in GIC Re to comply with the minimum public shareholding (MPS) norms, and the government will take the final call on its execution. Ramaswamy added that we are open to doing any due diligence for an investor interested in the company.