India’s post-pandemic recovery will sustain growth in insurance premiums, improving profitability amid favourable government reforms to the state-owned insurance sector, according to a new report by Moody’s Investors Service.
“The Indian insurance industry’s growth prospects are favourable, 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 Mr 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 by 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.
Meanwhile, the government’s plans to recapitalise India’s dominant state-owned insurers and list the country’s biggest insurer, LIC, on the stock market will encourage a more disciplined approach to underwriting in the respective general and life insurance sectors. This will pave the way for price increases across the market, further supporting insurers’ profitability.
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. Insurers will continue such transactions in the coming months, which will improve the Indian insurance sector’s capital adequacy and financial flexibility.