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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 & Development Authority, 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.
Source: EconomicTimes
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