Global credit ratings agency AM Best is revising the outlook on India’s non-life insurance segment to Stable from Negative.
The agency cited a number of factors towards the outlook.
This includes: robust growth potential, driven by economic development and rising insurance demand, recent regulatory developments that streamline product development process and support better cost optimisation, as well as enhanced financial flexibility following recent developments to improve access to capital.
But, despite the change in outlook, downside risks remain: notwithstanding rate improvements, underwriting margins are expected to remain constrained by excessive market competition, price inadequacy, and increase in reinsurance costs, however investment returns are likely to remain a strong contributor to overall earnings.
However, despite underwriting challenges in a competitive landscape, the segment is said to have robust growth potential, which is supported by favourable regulatory developments and enhanced financial flexibility.
According to the agency, insurers now have new options in issuing capital, including the issuance of preference shares and subordinateddebt without first obtaining approval from the Insurance Regulatory and Development Authority of India (IRDAI).
It is important to note that this change not only diminishes the level of regulatory overhead to access additional debt and equity capital, but it also provides for faster fundraising to strengthen capital adequacy to meet liquidity needs if necessary.
In addition, further growth in the non-life segment is likely to be supported by regulatory moves to speed up the product development process, increase insurance penetration and promote financial inclusion, all of which is part of the IRDAI’s vision of “Insurance for All” by 2047.
Chris Lim, associate director, AM Best, commented: “With the process of getting new product offerings to market expedited, insurers will be able to more quickly capture niche segments. Companies also will be able to reprice products according to their loss experience more effectively and raise rates in a timely manner should loss experience be worse than expected.”
Meanwhile, Best also expects underwriting margins to remain constrained by excessive market competition, price inadequacy and increased reinsurance costs, although investment returns are likely to remain a “strong contributor” to overall earnings.
A disappointing underwriting performance across the segment’s two largest lines – health and motor – remains a drag on overall profitability.
Lastly, health insurance claims have also witnessed a decline in the aftermath of the COVID-19 pandemic; however, loss experience has yet to recover to pre-pandemic levels and remains challenged by medical inflation.
In response, insurers have raised premium rates in recent periods, with rate increases for the larger players reportedly sitting around 10% – 25% on average in FY2023.
However, looking past these negative pressures on India’s non-life market, recent trends underscore insurers’ abilities to remain resilient and navigate through challenges, notwithstanding downside risks.
