GIC slides into Q3 Rs 1,000 crore loss on PM's Fasal Bima Yoga crop insurance scheme

BENGALURU: Domestic reinsurer GIC Re swung to a loss of Rs 1,070 crore in the third quarter ending December from a profit of Rs 336 crore the previous year due to crop insurance losses from reinsuring the government’s flagship Pradhan Mantri Fasal Bima Yojana scheme (PMFBY).

The impact of excessive rains in Karnataka, Maharashtra, Madhya Pradesh and others states on crops towards the end of 2019, contributed to the underwriting losses ballooning to Rs 2,815 crore from Rs 16.5 crore. The world’s 11th largest reinsurer by market cap saw its solvency margin — a measure of its ability to honour claims — dip to 1.51% against the regulatory requirement of 1.50%. Company sources said the firm managed to meet regulatory prescriptions by boosting investment incomes by 46% to Rs 1,628 crore through sale of securities.

When it came to equity assets or the company’s stock portfolio, GIC Re’s investments in shareholders fund decreased 19% to 17,030 crore from Rs 20,934 crore. It also increased its provisions for losses to Rs 12,887 as of December 2019 from Rs 7,503 in 2018 — a Rs 5,300 crore increase which points to a protection gap.

“Since GIC Re’s agriculture portfolio is being reinsured with Warren Buffet’s Berkshire Hathaway it either means the terms of the contract for reinsurance are proving unfair. Or that the foreign reinsurer is reluctant to take on more risk — and GIC Re has to make its own provisions,” said an insurance official.

Paid claims for the third-quarter soared 34% to Rs 8,732 crore and its incurred ratio year-over-year (YoY) worsened to 108% from 83%; meaning for every Rs 100 GIC earned in premium, it paid out Rs 130 in claims. Combined ratio — a measure of profitability that compares losses paid, business expenses against premiums earned — worsened to 131% from 98%.

Gross premium written increased 28% YoY to Rs 11,540 crore after it earned higher premium from reinsuring fire, motor and agriculture risk. Fire reinsurance premium was up 50% to Rs 2,338 crore, while motor grew 25% to Rs 2,302 crore. Premium from agriculture insurance rose 28% to Rs 1,924 crore. GIC Re’s net worth decreased by Rs 2,370 crore to Rs 19,351 crore YoY. Shares were down 3% to Rs 265 Monday on BSE.

Source: The Times of India