A.M. Best has maintained its negative market segment outlook on India’s non-life insurance market, citing a continued reliance on realised and unrealised investments to offset technical losses, short-term regulatory disruption, and underperforming core business lines.
The rating agency acknowledged that the non-life insurance industry has been one of the main beneficiaries of India’s fast-growing economy, and has substantially increased its pool of insurable risks in recent years thanks to compulsory agriculture insurance.
However, heavy competition and regulatory challenges for product development have hindered technical performance, with most companies relying on strong investment income from Indian equities, which have shown sustained outperformance relative to global indices.
The market’s combined ratios have fluctuated between 110 and 125 over the past five years, and most insurers have become dependent on investment income to generate profitability, leading A.M. Best to question their long-term viability,
Motor insurance, which consists of own damage and third-party liability (TPL), continues to dominate the non-life insurance market, generating about 40% of premium volumes.
Although this segment’s incurred loss ratio has improved over time, the size of its reserves relative to capital remains significant, and A.M. Best remains concerned about the potential for tail development.
Unfavourable reserve adjustments also have the potential to impact current performance and capital due to the lack of profitability in many other lines, analysts noted.
Additionally, India’s mandatory crop insurance scheme, which has provided a significant premium boost to non-life insurers since launching in 2016, has recently come under criticism due to volatile loss ratios and delays on claims settlements.
Despite its negative outlook, A.M. Best stated that non-life insurers with sound risk management practices and disciplined underwriting will likely manage to steadily improve their profitability and capital strength.
