AM Best has opted to maintain its negative market segment outlook on India’s non-life insurance sector, owing to COVID-19 driven economic turbulence as well as other areas of uncertainty.
Other key factors underpinning AM Best’s outlook include the non-life sector’s strong competition in India, poor pricing discipline in core business lines, reliance on investment activities for profitability.
Although analysts expect insurance premiums in the country to continue to grow in the medium term, recent and further periods of mandatory lockdowns to curb the spread of COVID-19 are likely to drive a slowing and uneven pattern for premium growth in the short term.
Existing pressures on the underwriting performance of non-life insurers are also likely to be exacerbated by COVID-19-related claims, although AM Best believes the extent of the impact will remain closely tied to the scale and longevity of the pandemic.
Nonetheless, the rating expects that non-life insurers will gain some respite in motor claims experience with reduced road activity during the lockdown period.
Further disruption could be caused by the eventual restructuring of several large state-owned non-life insurers, which have already been in the works for many years.
AM Best noted that the state-owned companies involved in the transaction are likely to face significant integration and business interruption challenges that could persist for a prolonged period.
Overall, AM Best expects the India non-life market to face several headwinds over the medium term.
Although the segment consists of a diverse range of insurance companies, the general operating environment in India in the short term is likely to present clear challenges for non-life insurers’ earnings and capital positions.