homeearnings NewsGIC RE: Capital erosion has been substantial in first three quarters of FY20

GIC RE: Capital erosion has been substantial in first three quarters of FY20

GIC RE, the largest re-insurer in India, came out with its Q3FY20 results. The key highlight of the results is the capital position of the company. It’s at 151 percent versus a regulatory requirement of 150 percent.

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By Abhishek Kothari  Feb 11, 2020 2:53:23 PM IST (Updated)

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GIC RE: Capital erosion has been substantial in first three quarters of FY20
GIC RE, the largest re-insurer in India, came out with its Q3FY20 results. The key highlight of the results is the capital position of the company. It’s at 151 percent versus a regulatory requirement of 150 percent.

In the first nine months of this fiscal (9MFY20), the general insurer has lost about 55 percent in terms of capitalisation i.e. from 206 percent in FY19 to 151 percent in Q3FY20.
The insurer has reported a net loss of Rs 1556.5 crore when compared to profits of Rs 2239.7 crore during the same period a year ago. This is due to underwriting loss to the tune of Rs 5903.6 crore in 9MFY20 which compares with an underwriting loss of Rs 2312.6 crore year on year. The combined ratio for 9MFY20 was at 115.8 percent vs 107.6 percent.
The losses have been due to crop insurance products or agri-insurance which was impacted due to floods in various states. India witnessed floods in 12 of its states i.e. Kerala, Gujarat, Karnataka, Maharashtra, Madhya Pradesh, Tamil Nadu, Goa, Odisha, Andhra Pradesh, Punjab, Assam & Bihar.
The underwriting loss for the first three-quarters of FY20 in crop insurance has been at Rs 2042.5 crore which compares to profit of Rs 413.3 crore a year ago.
The underwriting loss for 9MFY20 in fire insurance has been at Rs 2324.8 crore which compares to under-writing loss of Rs 1749.7 crore year on year.
Hopefully, they should be able to raise funds in Q4FY20. If not and more importantly if GIC RE’s capital ratio falls below 150 percent, it can turn out to be a systematic issue. Last year, when they had a huge loss in fire insurance, they raised re-insurance rates in the fire insurance product. This led to all other companies increasing the cost of fire insurance which resulted in the overall growth of the segment. However, in the current scenario, GIC RE can’t hike the price on crop insurance because of the tendering nature of the business and political sensitivity.
The inability to pass on the increase in the product price will also impact the profitability in that segment for GIC RE.

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