The open-for-all 19 years general insurance history of India hasn’t
challenged the leadership of the oldest player of the country.
The centurion has not only stayed with its admirable inheritance of the legendary Tatas but also built huge wealth for its
stake holders. With reserve position that is stunningly more
than the market capitalisation and investment income that
could at least be four times the equity base ever and a strong
management capable of meeting every market challenge,
NIAC is truly an insurance giant in size and power.
A centurion naturally has better experience and knowledge of the market as well as the business it has been engaged in over the years. Decades long experience of the current management contributes to the strength of the company to make it stay at the vanguard of the industry. A management which has seen the changes that the industry has been witnessing over the years knows how to set its goal perfectly and achieve it.
India has come a long way, so is the general insurance industry. Now there are plenty of opportunities for everyone. The economy is growing rapidly – perhaps at the best rate in the world, so is the approach of young Indians towards buying insurance products as a safety measure against unforeseen fallouts. As an encouraging indication, our young generation is buying insurance with due importance as they understand the needs of covering unforeseen risks.
New India Assurance Company (NIAC), India’s largest non-life insurer with significant global footprint, has witnessed India’s socio-economi changes over the years and stood up stable without being vulnerable to competition after the insurance sector was opened up 18 years ago for private entry. Now the competition is heating up along with pressure on underwriting prices across the industry.
There begins the next big challenge for NIAC management, now headed by Mr Atul Sahai, who took over the position of Chairman and Managing Director of India’s largest non-life insurer in early December – more than five months after the retirement of Mr Srinivasan. It was few days before his joining the general insurance giant, it reported substantial underwriting losses for Q2 period. But that was not so worrisome being an industry phenomenon, analysts also accept the fact.
The financial year 2018-19 was a challenging year with multiple CAT events affecting both the Indian and foreign operations to the extent of roughly Rs 740 crore. On the
domestic front, the company was impacted by adverse performance of the crop line of business where poor climatic conditions led to claim estimates being revised higher
coupled with refund of some premium due to Area Correction factor computation. Underwriting losses touched Rs 210 crore in the year. Yet, NAIC could post net profit of Rs
580 crore for the year.
NAICL in 2018-19, aligned the method of
computaon of URR for foreign business
with that of the Indian business, which led
to a further hit of Rs 175 crore. Write off
and provisions made a hit of Rs 116 crore.
On account of change in actuarial
assumpons, the provision for rerement
benefits was significantly higher than the
previous year. The results were further
affected by the provisions made by the
pension and gratuity funds against their
exposure to certain debentures.
Board of Directors has recommended dividend of Rs 1.50 per
equity share of Rs 5 face value
Sahai and his colleagues know the trend of the industry closely so that they can keep the company unhurt further from future underwriting losses for the period ahead, though of course claim on damage is unpredictable. But a more prudent and discreet market approach can help the management reverse future losses, the top management of the company rightly believes. Analysts, who watched the underwriting culture of NIAC also agree this.
Mr Sahai, being one in the team that turned around another public sector nonlife insurer, Oriental Insurance Company, is optimistic of bringing back NIAC’s track record and sustaining the growth trajectory. “As a general insurance company, we have enough strength within. We are hopeful of reversing the trend. We have the capability to come up to the public expectation. NIAC will surely succeed in its growth strategy,” he asserts. “Of course, cutting underwriting loss is one of my priorities, which is possible through exploring quality business and discreet approach. At the same time, we need to work for penetrating into newer market to contribute to the growth of the industry that is essential,” he says.
Mr Sahai has brought with him more than three and half decades of experience in the non-life insurance business. He praises the NIAC team for their hardworking and commitment that helped NIAC stay as a leader in a market of 33 players. Despite so many players active in the market, NIAC continues to be the market leader in health, motor, liability, fire and marine businesses.
It has leadership position in overall premium collection also.
“We are confident of retaining our leadership position and strengthening
the base further by deploying our many years of expertise and in-depth
knowledge of the market. We want to create awareness about the
importance of buying insurance across all sectors, while, as commercial organization we will continue to focus on more profitable business,” says Mr Sahai.
As it grows at the rate of general insurance industry growth, analysts see NIAC’s leadership position intact. With huge cash reserve and solid return on investment that its peers listed on the bourse do not have, NIAC is in a better position than others. But analysts wanted to see it galvanizing the core areas of business. NIAC has that strength, one of the analysts, whom Ecostar Business spoke pointed out. With network of 2472 offices and enviably strong sales force besides online platform and various distribution channels any extra business promotion drive would help it bring substantially large size of business. The company is deploying this strength to open newer front for closer rapport with people, as we firmly believe in strengthening the customer touch points,” he points out.
NIAC has a strong pool of skilled and admirably committed manpower. Its workforce constitutes 18000 employees. With constant training and retraining the competence of the work is intact with enough capability to take on new challenges.Atul Sahai
NIAC is already recognized for its highest levels of customer services. That is enough to retain the existing customer base. “We focus on improving our customer service level further buy cutting the turnaround time. We want to automate the claim disposal process,” he avers and adds, the deployment of sophisticated technology platforms will enable it to improve the service.
NIAC will go for quick settlement wherever it is possible, which will bring delight to the customers thereby retaining them with it. NIAC is present in 28 countries, the largest for an Indian insurer. Of the total premium income, an estimated 15 per cent comes from the foreign market.
In the second quarter (Q2) of the last financial year, when NIAC reported
combined ratio of 124.70 per cent analysts were not so deeply disappointed as they expected the same to be arrested in the forthcoming quarters. The combined ratio in the first quarter (Q1) of last was marginally lower than the ratio it reported for the entire financial year 2017-18. “This may come down in the coming quarter,” says an analyst belonging to a Mumbai based financial institution, who attended an analysts’ meet called in by NIAC. “Being the largest player in the industry, NIAC would obviously carry the damage of catastrophe on its shoulder. Having significant foreign business too in its books its performance is attuned to the global economy also. Still NIAC hasn’t been a big looser. I expect the coming quarters to show improvement in the combined ratio,” the analyst adds.
What one can appreciate about NIAC is its well-calculated underwriting bid for government schemes. From this gesture, we see NIAC’s serious approach on quality business and twin focus on volume and profit, says the analyst. Underwriting loss may not lead to an overall loss in its book due to the huge return on investment. “Though this is one of the strengths of NIAC, people want it to improve its underwriting performance as a core business performance,” says another analyst. Mr Sahai also emphasises on NIAC’s immediate strategy to cut the underwriting losses.
J.P Morgan in its report to institutions in November 2018 said: “We believe that the industry’s underwriting cycle turnaround in 2019-20E will provide the company with strong underwriting turnaround potential in the next two years in particular. Suffice to say, the company is a large sample in the system (market share: ~14%, as of Sep-18) and the industry is in the stage of premium hikes, better claim control, and more supportive regulatory developments in the third party motor insurance. Thus, under an outlook of potential underwriting cycle improvement in the next couple of quarters, we do not think that the company would be an outlier.” Indeed, there is nothing wrong with its fundamentals. The quarterly underwriting loss is unlikely to repeat, all analysts are unanimous in their opinion about this. “We think that loss ratio normalisation is likely in a couple of quarters. We suspect that the company’s relatively smaller reserve provisioning or relatively stable loss development experience in the last couple of quarters in third-party motor insurance and crop insurance look to lead large IBNR reserving top-up,” J.P Morgan its report to its clients said.
In 2017-18, NIAC reported 15 per cent growth in gross premium income at Rs 26,554 crore and profit after tax of Rs 2,201 crore. The growth was uniform across all geographies. Of the total premium 39 per cent emerged from motor insurance, 27 per cent from health, 14 per cent from fire, seven per cent from agriculture and rest 13 per cent from other segments (see pie-chart). NIAC’s net worth including fair value as at the end of March 2018 stood at Rs 38,301 crore. Its asset base stood at Rs 76,904 crore. In few months after listing, it paid one share bonus for every share and dividend of 175 per cent. The company’s financial performance in the current year, as analysts expect, may improve as the Q2 slow movement is likely to be adjusted against better numbers in the remaining two quarters. Overall, the analysts expect the premium income to grow more or less the industry standard with better chances of higher growth in the coming years in view of its overall geographical reach and management strategy of chasing high value better quality business.
One and half year, AM Best has affirmed it the financial strength rating of A-(excellent) and the long-term issuer credit rating of “a-” . The ratings reflect its balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, favourable business profile and appropriate enterprise risk management. The company’s favourable business profile reflects its solid market position. A.M Best had earlier also assigned this
excellent rating and emphasized in its report, New India’s balance sheet strength that reflected solid risk adjusted capitalization supported by low underwriting leverage. Its capital and surplus is by far the largest among all non-life insurers in India, it had noted couple of years ago. Similarly, in end June 2018, CRISIL had reaffirmed the financial strength rating of The New India Assurance Company at
‘AAA/Stable’ indicating that the company has the highest degree of financial strength to honour its policyholders’ obligations. “The company is also the flagship Indian general insurer in the international markets, with a desk at the prestigious Lloyd’s syndicate in London,” the rating agency noted in its report.
The rating also was said to have factored in its strategic importance to, and expectation of strong support from, the Government of India (GoI), given the company’s strong track record and extensive market reach.
NIAC already has many laurels on its caps being India’s largest non-life insurer with more than 15 per cent market share in terms of gross premium collection despite having too many players chasing high volume business. It has the strongest global presence among Indian insurers.
It is the first public sector non-life insurance company to get listed on the bourse. By virtue of its stock listing, the equity market fraternity has found a potential industry for analysis with empirical details about India’s non-life industry. It is a new segment for analysts in the equity market, who are yet to derive a standard for valuation and earning ratio, analysts say. But NIAC, being the largest player in the industry, with longest experience in the country and also abroad and having huge investments spread across various assets, can set an ideal benchmark for analysts.
Nevertheless , NIAC has huge advantage over others, especially in terms of market reach and consistently growing other income stream that peers do not have. At the same time, other players in the industry do have the same strength.
The general insurance industry in India has a huge space for growth as vast potential of the segment still remains vastly untapped. Besides this, the rapid economic growth renders newer opportunities for non-life insurance business. Study reports of various international agencies point out India’s faster economic growth, at the best rate in the world. “The General Insurance industry’s growth is directly proportional to the growth of the Gross Domestic Product (GDP) of the country which means an increase in manufacturing, service and infrastructure activities would contribute to growth of the general insurance sector,” NIAC’s last year annual report rightly pointed out. That naturally makes India one of the top emerging markets in the world for insurance business.
The penetration of non-life insurance in the country is less than one per cent compared with the global average of close to three per cent. Compared with the Asian average, India’s insurance penetration is less than half, despite the being one of the three largest economies in the continent.
As of now the insurance density in India is pitifully 20 times lower than the world average. NIAC’s Annual Report 2017-18 also mentioned: “The insurance density too, at $ 13.2 in 2016, is much lower than the global average of around $ 285.” Two-thirds of Indians are yet to be covered by health insurance policy, despite having government schemes and employers’ cover in many cases. This situation will change as the economy grows and the consequent rise in per capita income. The insurance coverage on home loan is still too small leaving behind a huge space for coverage.
Coming to the industrial sector the penetration of insurance is estimated to
be only around one per cent. This also shows a huge window for rapid growth. These sectors cannot stay without insurance for long. Sooner than later they are expected to understand the fact. It is only a matter of awareness, which the General Insurance Council seemingly has taken seriously. People will understand the necessities and will consider buying insurance against the future risk as we go ahead, says Mr Chandrasekaran of the General Insurance Council. All these are opening up huge opportunities for insurance players. bigger will have better advantage.
NIAC, as mentioned in its last Annual Report “has constantly focused on the need to increase the insurance penetration and awareness in the country, aiming towards an inclusive growth.” It is with this purpose NIAC is opening more offices so that it can reach out to more people.
When alternative distribution channels continue to bring in more business as the strategy is working well, it is also giving greater focus on customer touch points. “We need to bring insured ones closer to us.
0As we open newer platforms including bancassurance model, we don’t want to lose the traditional model of customer relationship. That will help us understand our customers more closely, improve the business quality and bring in more comfort for underwriting,” says Mr Sahai. As Mr G. Srinivasan, then Chairman and Managing Director of NIAC mentioned at the AGM, it still carried the legacy of the Tatas. Until 1973, India’s legendary Tatas had run NIAC that was founded in 1919.
In an overcrowded market of 33 non-life insurance players including the specialized one like Export Credit Guarantee Corporation (ECGC) and Agricultural Insurance Corporation, cutting out more than 15 per cent with stable growth shows NIAC hasn’t been vulnerable to competition from apparently more aggressive private players. Almost every financial institution, which has presence in India’s financial market, has already been briefed about what NIAC’s strength is. But they are yet to conclude on their equation of valuation.
NIAC presents a unique insurance model for analysts and for those who watch general insurance industry, being it India’s largest player, financially the strongest with huge reserve that is more than the market capitalization and its sagacity to retain the leadership position in the 18- years old open market. The centurion is unbeaten.