PSU insurers unfazed by shrinkage of aviation biz

Bangalore: Public sector insurance companies’ liabilities are expected to shrink by about Rs 1,700 crore this year with the termination of aviation leases.
The sum insured on each of the aircraft on lease to both Kingfisher Airlines Ltd and Jet Airways Ltd was about $29 million. Both these companies have already indicated in stock exchange notices that the leases of at least 12 aircraft would be returned to the lessors. Under the current contract arrangements, the ownership of the aircraft is vested with the lessors, insurance premium payments are to be made by the aviation companies. This comprised part of the operating expenditure.
Currently, aviation risk business is dominated by the four PSU insurers — New India Assurance Company Ltd, United India Insurance Company Ltd, Oriental Insurance Company Ltd and the National Insurance Company Ltd. High level officials of the public sector insurers said that the return of the aircraft would actually result in further improving their respective solvency margins.
The insurance regulator prescribed solvency margin is currently 150 per cent. This implied that the capital and value of the assets would have to be at least 150 per cent more than the insured liabilities. PSU insurers are however operating at solvency ratios of close to 200 per cent. The lease termination and the consequent cancellation of the risk contracts would push up the solvency ratios to at least 210 per cent, the sources said.
The only advantage with the aviation business is that claims ratios in the sector have remained low. Loss ratio in aviation business is currently about 40 per cent, making it a profitable sector. Insurers, though, said a large component of the aviation risk was reinsured. As a result, despite the low ratios, profits were also low in view of the low ceding commissions from reinsurers.
07/11/08 C. Shivkumar/Business Line

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Categories: Indian Aviation- In General Nov 2008