HDFC Securities: High Combined Operating Ratio Dents GIC’s Q1 Profitability
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HDFC Securities Report
General Insurance Corporation of India Ltd. is India’s largest reinsurer but continues to make significant underwriting losses (Q1 FY21 combined operating ratio: 112.9%).
A calibrated approach to underwriting is expected to change this over FY21-23E.
We estimate an FY22E adjusted return on equity is at 9.8%, and value GIC at 0.7 times FY22E adjusted book value less 10% discount for an additional 10.8% stake to be sold by Government of India.
Q1 FY21 highlights: Led by steep decline of 65.7% in crop and 30.6% in motor YoY, net written premium declined 25.6% YoY to Rs 146.6 billion.
Combined operating ratio (calculated) increased 1,021 basis points YoY to 112.9% as incurred claim ratio (ICR) increased 725 basis points YoY to 94.9%, and commission ratio increased 282 basis points YoY to 17.5%.
This was mainly due to high losses in property and motor segments.
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