GIC Re, New India Assurance soar 20% in range-bound market

Shares of general insurance companies were on a roll on Wednesday. Both General Insurance Corporation of India or GIC RE (Rs 258) and the New India Assurance Company (Rs 114) hit their upper circuit of 20 per cent on the BSE after a news report suggested that insurance sector posted a substantial growth rate in premiums.

In comparison, the S&P BSE Sensex was up marginally by 0.01 per cent at 38,510 points at 02:37 pm. The trading volumes on both these counters jumped by more than 10-fold, as compared to an average trading volumes in the past two weeks.

According to an Indian Express report, both life and non-life insurance segments saw robust growth in terms of premiums collected at least till the six-month period ended September 30 of FY20.

The general insurance industry in September grew by almost 40 per cent to Rs 19,047 crore. The public sector insurers have mopped up a premium of Rs 8,873 crore, up 43 per cent while the private sector companies have mobilised a premium of Rs 10,174 crore, up 37 per cent during September, the newspaper reported. 

With a penetration level of just 0.9 per cent of GDP, the general insurance industry has multi-year growth headroom in India. Unlike life, general insurance is non-discretionary, making it virtually indispensable. But most contracts are annually renewable and switching costs remain low.

Analysts at HDFC Securities believe competitive forces will limit profitability of the motor-line and general insurers will be conservative in releasing reserves (only with better experience), reporting limited profit growth. They also risk regulatory action on commission payouts and third-party (TP) product pricing. The brokerage firm expects this to result in a tapering of growth for motor TP after the initial spurt.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel