Insurance sector to have fewer but stronger players: ICRA

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An expected easing of rules governing foreign stakes in local insurance firms could lead to more competition, resulting in fewer but stronger players in the country, rating agency ICRA Ltd. said on Wednesday.

The government late on Tuesday won a tight confidence vote in Parliament, boosting hopes it will push through financial sector reforms, including raising the limit of foreign stake in insurance to 49 percent from the current 26 percent.

Shares in holding companies of insurance firms rose on Wednesday, following the confidence vote. ICICI Bank were trading 11.5 percent higher, Max India were up as high as 13 percent in early trade while Future Capital Holdings were up as much as 20 percent on Wednesday.

ICICI Bank holds controlling stakes in ICICI Prudential Life Insurance Co Ltd and ICICI Lombard General Insurance Co Ltd while Max India holds stake in Max New York Life Insurance Co Ltd. Future Capital holds stake in Future Generali India Life Insurance Co Ltd.

The relaxation of foreign investment limit, opposed by communists who were former allies of the government, would be positive for the sector as it will lead to higher capital inflows, said Subrata Ray, head of corporate ratings at ICRA.

"Currently, we have around 8 players controlling more than 90 percent of the market in the general insurance sector," he told reporters adding inadequate capital was the main reason behind the dormant status of some players.

India currently has 20 life insurance firms, 19 general insurance firms and one re-insurer, according to data from the Insurance Regulatory and Development Authority. Many more local and foreign firms have shown interest to enter the sector.

The growth potential for insurance is seen high in a country of more than a billion people where the insurance penetration is less than 5 percent, one of the lowest in Asia.

ICRA, in which Moody's Investors Service holds 28.5 percent stake, has launched ratings of insurance firms along with Moody's and has rated four general insurance firms, he said.