New India Assurance vs ICICI Lombard: Investors monitoring earnings quality
₹43,500 crore and ₹80,700 crore, respectively. This is even though the former’s market share is at 16% versus about 8% of the latter. A deep dive into the comparative financials of the two reveals the reasons.
To begin with, New India Assurance’s underwriting losses are far higher than ICICI Lombard. For instance, in the December quarter (Q3FY24), New India’s underwriting loss stood at ₹1,390 crore. Underwriting loss is calculated by deducting the incurred claims and operating expenses from the net premium earned (or simply put: revenue).
It indicates the underwriting standards, or in other words, it is the risk assessment skill of an insurer regarding the likelihood of a claim at the time of insuring a person, object, or property. Sure, it is possible to argue that ICICI Lombard too reported an underwriting loss of ₹280 crore last quarter, but the loss as a percentage of net premium earned is much lower at 6.5% as against 15.5% for New India Assurance. New India Assurance still managed to report an operating profit of ₹290 crore owing to income from investments worth ₹1,680 crore.
Operating profit is the summation of underwriting profit/loss and income from investments. The reason for the underwriting loss was that New India Assurance had to pay almost 93% of the net premium earned towards claims. Even if the claims related to catastrophic losses due to the cyclone and floods in South India, Sikkim, and West Bengal worth ₹350 crore are excluded, the ratio comes to 89%.
This is much higher than the 70% reported by ICICI Lombard in Q3FY24. Further, ICICI Lombard enjoys a higher solvency ratio of 2.57 as against 1.72 of New India Assurance. The higher solvency ratio indicates the ability to underwrite more business or do
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