Volatile bond market may have minimal impact on GI companies income
Aug 25 2013 , Mumbai
"Impact, whether positive or negative, will not be much on general insures despite recent volatility. Because most bond investments are having a maturity of two-three years. Also, the industry doesn't have any pressing need to redeem bonds to settle claims as cash flow will take care of that," Reliance General Insurance CEO Rakesh Jain said.
The asset-liability mismatch will not be an issue as there is no shortage of liquidity for the industry, he said.
Investment income constitutes a significant portion of the total income of general insurers. Even some larger players lose money in core operations but make profit due to their higher investment income from treasury operations.
Bond yields have hardened in the past one month following the recent RB measures to contain rupee volatility. The benchmark 10-year G-Sec yield rose to around 9.43 per cent last week, but later cooled off to around 8.30 per cent.
Industry officials said that mark-to-market losses will not been too high for general insurers after RBI allowed a one-time conversion of available-for-sale (AFS) bonds into the held-to-maturity (HTM) category last week. Also, their exposure is not that big.
According to a recent report by State Bank of India, but for this RBI relaxation, the insurance industry would have made mark-to-market (MTM) losses of around Rs 37,796 crore as of August 16, after the July 15 and 23 tightening by RBI.
Some officials even argued that MTM losses may come from the life insurance industry and not the general insurance side.
"We don't see much impact on our investment income due to the volatility," New India Assurance General Manager and whole-time Director K Sanath Kumar told PTI.
Bharti Axa General Insurance Managing Director and Chief Executive Amarnath Ananthanarayanan said that investment pattern of general insurers differs from other financial institutions, as short-tenor bonds are the preferred instruments.
"As the contract is mostly for one year period, the investment horizon of general insurers is short-term than locking in for longer period. I feel, as the prices of these bonds fall, this will have positive impact on investment income," he said.