The share prices of GIC Re and New India Assurance(NIA) fell on Monday after their stocks were downraded by HDFC Securities and HSBC securities respectively.
Shares of GIC Re fell over 5 percent on Monday and closed at Rs 245 after HSBC Securities downgraded the stock to hold citing limited upside from current levels.The stock has fallen more than 20 percent in the last 15 days.
NIA share price fell 4.67 percent and closed at Rs151 on Monday after HDFC Securities downgraded the stock to sell with a target price of Rs 116, implying 27 percent potential downside from current levels following the recent run-up in the share price.
HSBC said flood losses, hurricane claims and crop losses resulted in deterioration of loss ratio of the GIC Re .
The GIC Re's gross written premium increased by 14 percent over Q2FY19, with strong growth in fire, crop, marine, but investment income fell 17 percent YoY to Rs 1,800 crore and shareholders' funds fell 9 percent from Q1FY20 while the solvency ratio fell too, it added.
However, HSBC raised price target for the stock to Rs 285 (from Rs 265 per share), implying 10.5 percent potential upside from current levels.
The stock of the NIA, India's largest insurer had rallied more than 60 percent in the last one month. It was quoting at Rs 151.90, down Rs 6.35, or 4.01 percent on the BSE at 1406 hours IST.
NIA continues to make high underwriting losses and the first half of FY20's the compay's combined operating ratio (COR) was: 116.4 percent, said HDFC Securities which expects the stock to correct in near term.
"We also note that the company’s competitive positioning is only weakening and thus we remain concerned about its ability to write high quality (profitable) business in the near future. We estimate an FY22E adjusted return on equity (RoE) of just 7.2 percent, and can at best assign a valuation of just 0.6x September 2020 ABV (less 10 percent discount for expected 10.4 percent supply)," HDFC Securities added.
While NIA reported a better-than-expected COR of 118.3 percent (down 610bps YoY), high net earned premium (NEP) meant large underwriting losses of Rs 1,100 crore (up 9.4 percent YoY).
The company's investment income (Rs 1,710 crore, 11.6 percent yield) and low tax rate (12.2) ensured a high PAT of Rs 560 crore (up 59.8/99.2 percent YoY/QoQ).
Despite a 19.5 percent YoY increase in net written premium (NWP), NEP increased only 12.4 percent YoY to Rs 5,880 crore.
Motor/Health/Fire NEP grew 9.1/19.9/36.0 percent YoY. Management has highlighted that a slowdown in motor persists.
"Underwriting losses narrowed marginally sequentially to around Rs 1,100 crore. Health (Rs 450 crore, 44.3 percent share) and motor (Rs 270 crore, 26.4 percent share) continue to report highest losses. NIACL continues to write low margin group health and government business leading to higher losses in health," HDFC Securities said.
The NIA's investment book grew a mere 1.3/-1.5 percent YoY/QoQ to Rs 59,100 crore, aiding investment yields to 11.6 percent (+50/160 bps YoY/QoQ). Fair value reserves have declined by Rs 3,130 crore over the first half of FY20.