Analysts at Moody’s have reported that rising premium growth and government reforms are expected to strengthen Indian insurers’ profitability.
The rating agency says growth prospects are favorable in the months ahead, supported by strong GDP expansion in India and demand for health insurance.
Specifically, the government’s plans to recapitalize India’s dominant state-owned insurers and list the country’s biggest insurer, Life Insurance Corporation of India (LIC), on the stock market are expected to bolster insurers, according to Moody’s.
Analysts believe these moves will encourage a more disciplined approach to underwriting in the respective general and life insurance sectors, while paving the way for price increases across the market, further supporting insurers’ profitability.
Additionally, it’s thought that India’s post-pandemic recovery will sustain growth in insurance premiums, improving profitability amid favorable government reforms to the state-owned insurance sector.
“The Indian insurance industry’s growth prospects are favorable, underpinned by an expected 9.3% GDP expansion in fiscal 2021, which ends March 2022, and by strong demand for health insurance in the wake of the pandemic,” said Mohammed Ali Londe, a Moody’s Vice President and Senior Analyst.
Total premiums grew 9% in the first nine months of fiscal 2021, slightly ahead of the 8.6% increase in fiscal 2020, with general insurance premiums (including health) up 11% and life new business premiums rising 7%.
Robust premium growth is positive for Indian insurers’ profitability, which is currently weak because of persistently low prices and the rising cost of claims.
Moody’s notes that rising premiums and prices, in turn, will help insurers absorb higher claims, which pushed the average net loss ratio for general insurers to 95% in the first three months of fiscal 2021 from 81% in the previous year.
In anticipation of profitable growth opportunities, 20 of India’s 34 general insurers and four of its 24 life insurers raised capital in fiscal 2020, and analysts expect insurers will continue such transactions in the coming months, which will further improve the Indian insurance sector’s capital adequacy and financial flexibility.
Earlier this week, India’s insurance and reinsurance industry regulator, the Insurance Regulatory and Development Authority of India (IRDAI), has announced plans to lower the country’s obligatory reinsurance cession rate by 1% for the 2022 to 2023 financial year.
