Rating agency A.M. Best highlights concerns about a stalling of performance in the Indian non-life insurance market, something reinsurance firms active in the region will need to watch out for.
As more players enter the reinsurance market in India it is important to be aware of primary insurer performance in the region and A.M. Best has concerns.
The rating agency says that a three-year trend of improving performance in the non-life insurance market in India has come to an abrupt halt, reflected in weakening industry profitability ratios ever since 2015.
The concern is that as insurers continue to grow fast in India their premium growth and risk build-up could outpace their capital growth in future, a situation that could either herald increasingly poor performance, or that could result in an increased need for reinsurance capital to support primary insurers.
Unprofitable health insurance business has led premium growth becoming the single largest business line in India, ahead of motor own damage business. This trend has resulted in increasing risk growth in the market, but without any growth in capital.
A.M. Best notes that it will be important to see how the government-supported crop insurance scheme which launched recently affects this dynamic. The crop scheme is partly index-based, so should at least be more easily reinsured to adequate levels.
It does seem that Indian insurers could utilise more reinsurance capacity to see off losses that erode capital, perhaps through quota shares and the like. As more reinsurers enter the market this could help to offset some of the poor performance, although of course reinsurance comes at a cost and if these insurers aren’t all that profitable already, additional cost while sharing premium profits may not improve the picture for them.
Private insurers seem to have better combined ratios than the government backed players, but government insurers have more capital. Reinsurance support looks likely to be required to assist India’s insurers in getting their combined ratios under control, but reinsurers entering the sector will need to be careful to control their own exposure to losses.
