Thanks for raising this critical question. Capital allocation is key to returns and becomes even more important in an industry like insurance where returns primarily come from the float amount invested. I had actually done some analysis regarding this, am attaching the same for your kind perusal.(Investment Portfolio Analysis.xlsx (12.3 KB)
Certain noteworthy points that came up during the course of this exercise:
1.The management has incrementally been investing lower amounts in equities over the past year or so even as total incremental investments have increased. Only 3% of incremental investments were made into equities in FY17 ( v/s an average of 14-20% in earlier years). To me, this is a sensible ploy considering that valuations are heated and it is better to be safe than sorry.
The fair value of the equity portfolio is Rs 38000 crores whereas cost is only Rs 8000 crores. The investment yield has been in excess of 12% since the past few years even though they are regulatorily bound to invest more than 50% of the investment book into government bonds(on which yields have averaged 6-8%)
Viewed in that light, I would consider it an above average investment performance.
The management has said that going forward, they plan to take profits in equity portfolio and reinvest in debt(this becomes even more lucrative given that yields have been steadily rising)
These are the factors that give me comfort regarding capital allocation/investment performance
My views regarding this is that though competition might increase, the market size is also increasing at a fast clip growing at 15-20% YoY. Thus the opportunity size remains large. Also, given its right of first refusal and the mandatory ceding of 5% risk by all insurance cos to GIC, these act as significant competitive advantages.
So even though competition might increase, my belief is that GIC will continue to do well in the future. The reasonable valuations give further comfort