Investor Focuses on New India Assurance's Profitability, Not Market Share

New India Assurance is India’s largest general insurance player that is predicted to last only for a short period of time pertaining to increasing losses. The situation is such that these losses are sweeping away the advantage of its dominant market hold in India and steady growth as far as premium collections are concerned.

The general insurer’s shares have increased 38% in three months owing to expectations of its further rise in share. The reason for high hopes is the recent reports of the amalgamation of three state-owned insurers viz., United India Insurance Company, National Insurance Company and Oriental Insurance Company.

On merging, these companies will make New India Assurance the only popular player as far as general insurers are concerned with state-owned ones, leaving aside General Insurance Corp of India as it is in the reinsurance business. New India Assurance Company already has more than 14% hold in the general insurance market.

But this won’t be sufficient to solve the issue of the company’s new being weaker than its current book.
While shares of ICICI Lombard General Insurance Co. have increased by 56%, New India Assurance’s shares have fallen 17% in 2019 by far.

The analysts said, "The challenge with New India Assurance is not about the market share, but profitability of the incremental business, which is coming at a loss.”

While issues related to the company’s weak underwriting are still on. Owing to the regulatory limit on foreign ownership in this sector, the possibility of strategic investor is also reducing.

Going by the combined ratio of the insurer, it can be seen that it is spending more money on settling claims than it is getting in the form of premiums. Combined ratio measures the underwriting performance, and the insurer is at 117% in Apr-Sep for this. It is expected by the analysts at JP Morgan that the insurer’s combined ratio will remain above 100% for some time now and will move towards 114% in 2021-22.

Fund managers really doubt if general insurance will witness any growth in India. They believe that ICICI Lombard because it offers zero crop insurance business, is a preferred one in the general insurance space.

While SBICAP Securities believes that the company will face several obstacles moving forward, which will slow the process of developing its operational performance. But the insurer has raised enough capital and is enjoying significant profits which can be utilised to better the performance.