ICRA expects the general insurance industry's GDPI to grow by 10-12% in FY2023, led by higher growth in the health and commercial business segments with increasing awareness of medical insurance and uptick in economic activity. Already the resumption of economic activity after the waning of Covid-19 infections, has led to the industry's gross direct premium income (GDPI growth recovering by an estimated 11% in FY2022 (compared to a 4% growth in FY2021). The GDPI of PSU insurers is expected to grow moderately at 4-6%, while private insurers are expected to capture market share by growing at a higher rate of 13-15% in FY2023. However, economic uncertainty due to structural challenges in the automobile industry and rising commodity prices amid the geopolitical crisis pose downside risk to FY2023 growth.
Giving further insights, Mr. Sahil Udani, Assistant Vice President & Sector Head - Financial Sector Ratings, ICRA, says, "The GDPI of private sector insurers grew at a faster rate of 14% (E) compared to the growth of 5% (E) witnessed by public sector undertaking (PSU) insurers in FY2022. The gross premium from the health segment experienced a steep Y-o-Y growth of 26% in 11M FY2022, while the fire segment premium grew by 8% in 11M FY2022 despite partial lockdowns across the country. Post the decline in FY2021, the motor business reported muted growth of 4% in 11M FY2022 on the lower base due to structural challenges in the automobile industry. However, the GDPI from the crop business declined by 20% in 11M FY2022 mainly due to the significant decline in the PSU business."
This ICRA paper, on the general insurance sector in India, analyses the performance of 18 general insurance companies collectively representing ~90% of the industry-wide gross direct premium written (GDPW) during 9M FY2022. Of these companies analysed, four are from the public sector and 14 from the private sector. The analysis does not include specialized insurers such as Export Credit Guarantee Corporation of India Limited (ECGC) and Agriculture Insurance Company of India Limited (AIC of India). The industry performance encompasses all the players in the general insurance industry, while the financial performance analysis section and outlook is pertaining to the 18 entities listed earlier.
The combined ratio across the industry deteriorated to 119% in 9M FY2022 from 112% in 9M FY2021 with increase in health claims. Covid claims accounted for 6% of the total number of health claims paid in FY2021 and are expected to form around 11-12% of the total number of health claims paid in FY2022. The combined ratio for the industry is expected to improve in FY2023 driven by lower health claims and likely improvement in risk pricing by the insurers. ICRA expects the combined ratio for PSU insurers to improve marginally to 124-126% in FY2023 from 127% (E) in FY2022 supported by various cost-cutting measures directed by the Central Government and better claims performance. However, PSU insurers are expected to continue to post net losses in FY2023 with negative RoAE. The private players, with better risk pricing and underwriting practices, are expected to report a combined ratio of 106-108% in FY2023 with RoAE of 12-14%.
Adds Mr. Udani, "With the deterioration of the combined ratio, the PSU insurers reported high net losses in 9MFY2022. To augment the solvency profile, the Government of India (GoI) infused fresh equity capital of Rs. 5,000 crore in weaker PSU insurers in March 2022. Accordingly, ICRA expects the solvency position of PSU insurers to improve to ~1.67x or ~1.39x as on March 31, 2022, considering 100% or 50% Fair Value Change Account (FVCA) forbearance, respectively. The ratings agency further, expects Government support to weak PSU insurers in the form of regulatory forbearance or fresh capital in FY2023. In so far as the the well-established private insurers are concerned, they have solvency ratios comfortably above the regulatory minimum with better profitability, risk management and asset-liability management." |
