Allahabad Bank, Indian Overseas Bank & Sompo Japan Insurance to infuse Rs 200 cr in Universal Sompo

KOLKATA: Allahabad Bank, Indian Overseas Bank and Sompo Japan Insurance will invest Rs 200 crore in their joint venture Universal Sompo General Insurance Co for the first time in four years to sustain business after underwriting losses eroded more than 100 crore of the insurer's capital. Underwriting loss means the insurer settled more in claims than its premium collection by selling risk policies. "We need fresh capital to maintain our solvency margin as well as to expand business," Universal Sompo's executive chairman ON Singh told ET over telephone. The firm plans to grow business by nearly 50% next fiscal and aims to collect 600 crore as premium. It expects to close the current fiscal with a 425-crore collection. "Our shareholders have agreed to inject 200 crore together as the need for risk capital has increased. They are expected to take this proposal to their respective boards soon," Singh said. Karnataka Bank and Dabur are also shareholders in the insurer. The capital infusion is expected to be done by March. The partners will invest according to the size of their holdings and none will pay a premium. Initially, overseas partner Sompo, a multinational insurance firm, joined the venture by paying a share premium for its 26% stake. A senior Allahabad Bank executive confirmed the bank had received a proposal for fresh investment. The bank is the single-largest stakeholder with 30% equity in the JV, while Indian Overseas Bank has a 19% stake. Karnataka Bank holds 15% while the non-bank partner Dabur Investments has a 10% interest. "It's an investment for us. We will discuss this proposal at the board but we are waiting for the insurance regulator to announce the new capital raising guidelines for general insurers," the Allahabad Bank executive said. Universal Sompo received its licence in November 2007 and started journey with a Rs 235-crore net worth, which has now shrunk to Rs 125 crore because of underwriting losses of close to Rs 110 crore. According to data released by Insurance Regulatory &, general insurance companies collectively saw a 68% jump in underwriting losses in 2010-11 at Rs 9,969 crore, compared with Rs 5,944 crore in the preceding fiscal. The insurer sells risk products for health and critical illness, personal accident and disability, home and motor, besides group products like employee benefit and project insurance.

Universal Sompo raises Rs 200 crore equity from promoters

KOLKATA: Universal Sompo General Insurance Company has completed raising Rs 200 crore of equity from its promoters on Friday, a senior official said. Allahabad Bank, Indian Overseas Bank, Karnataka Bank, Sompo Japan Insurance and the non-bank partnerDabur Investments have contributed to the fresh infusion of capital according to their holding pattern in the company. This is the first time in four years of Universal Sompo's life that the promoters injected capital to grow business after underwriting losses erode more than Rs 100 crore of capital of the insurer. The additional capital will help the risk insurer to maintain its solvency margin as well as expand business. The firm plans to grow business by nearly 50% next fiscal and aims to collect Rs 600 crore as premium. It expects to close the current fiscal with Rs 425 crore premium collection. Allahabad Bank is the single largest shareholder with a 30% equity in the JV, while Indian Overseas Bankhas a 19% stake. Karnataka Bank holds 15% while the non-bank partner Dabur Investments has

a 10% interest. Overseas partner Sompo Japan Insurance Inc holds 26% in the general insurance company which sells risk products for health & critical illness, personal accident & disability, home and motor, besides group products like employee benefit and project insurance.

General insurance industry to grow at 15% in FY14: ICRA

General insurance industry in India is expected to grow at a lower rate of 15% in FY14 owing to continued slowdown in the economic activity.

In contrast, over the past five years, the gross premium written by the general insurance industry has grown at a compounded annual rate (CAGR) of 18.1% to Rs 650 billion in FY13, with slowdown visible since FY12 in line with economic activity trends.

Karthik Srinivasan, Sr. VP, co-head financial sector ratings, ICRA said, ''There is a high co-relation between the premium volumes of the General Insurance Industry and the National GDP growth rates. The recent Slowdown in the economic activity has impacted the volumes.''

According to Karthik Srinivasan, the actual capital requirements will be dependent on the business mix, growth rates and claims experience, ICRA estimates that to maintain a solvency at 1.75 times (as compared to the regulatory requirement of 1.45 times from March 2014) while growing at a CAGR of 15-20% and maintaining similar claims records, the General Insurance industry would require around Rs 75-175 billion of capital over the next five years with the requirement for private sector at around Rs 45-80 billion.

The sizeable unrealised capital gains from the past investments for the public sector insurers provide sufficient buffer to support future growth while the private sector insurers with relatively shorter operating history track record and lower market share will need external capital to fund growth in business.

Going forward, ICRA expects the industry to gradually move closer to risk-based pricing model by leveraging technology and outreach, in addition to increasing focus on franchise building (via improved client servicing), cost competitiveness, and product differentiation, Srinivasan adds. This in turn is likely to help them better face increased competition if and when the industry is opened up further to foreign direct investment.

FDI in services sector dips 47.5% during Apr-Aug

Foreign direct investment inflows into the services sector declined by 47.5 per cent to USD 1.19 billion during the April-August period. The services sector, which includes banking, insurance, outsourcing, R&D, courier and technology testing, had received FDI (foreign direct investment) worth USD 2.28 billion in the same period last year, according to the data of the Department of Industrial Policy and Promotion (DIPP). Industry experts say that the government needs to further relax FDI norms to attract investors to the sector. "Although the government has liberalised norms in the financial sectors, more needs to be done. The outsourcing business of India was impacted due to restrictions by developed economies," said Krishan Malhotra, Head of Tax and expert on FDI at corporate law firm Amarchand & Mangaldas. The services sector contributes over 60 per cent to India's GDP. In 2012-13, foreign investment in the segment fell to USD 4.83 billion from USD 5.21 billion in 2011-12. Malhotra said the RBI would soon come out with guidelines on foreign banks, a move which will help in boosting FDI in the sector. The government is also considering raising the FDI cap in the insurance sector to 49 per cent from 26 per cent. The other sectors where foreign inflows dipped during the first five months of this fiscal as compared to the previous year include construction development (township and housing), power and metallurgical industries. Overall, during the April-August period, FDI has grown by only 4 per cent to USD 8.46 billion, from USD 8.16 billion in the same period last fiscal. Foreign investments are considered crucial for India, which needs around USD 1 trillion in the next five years to overhaul its infrastructure sector such as ports, airports and highways to boost growth. Decline in foreign investments could affect the country's balance of payments (BoP) situation and also impact the rupee.