Indian insurers prepared to withstand economic downturn: Moody’s

By: |
January 20, 2021 4:32 PM

Profitability and solvency concerns are driving mergers and acquisition in the private sector, and some private players are planning public listings in order to raise capital, according to the agency.

moody'sFor current fiscal, the US-based rating agency expects the economy to contract 7 per cent, lower than its previous estimate of 10.6 per cent contraction. (Photo source: Reuters)

Indian insurance firms are geared to withstand the economic downturn, as premium growth in general insurance segment will remain in positive territory and life premiums will stay broadly flat despite the weakening economy, Moody’s Investors Service on Wednesday said.

“Although the economic slowdown has had an adverse impact on Indian insurers, with general insurance growth slowing to 2.5 per cent and life insurers’ new business premiums falling by 1.7 per cent in the nine months to December 2020, we expect general insurance premium growth to remain in positive territory,” Moody’s VP and senior analyst Mohammed Ali Londe said.

This premium growth will be driven by strong demand for health and protection coverage, he added.

In the nine months ended December 2020, health premiums grew by 13.7 per cent, helped by rising consumer awareness of these products during coronavirus pandemic and regulatory actions that enabled insurers to offer protection against the virus.

“We expect health premiums to continue growing strongly into 2021, when we anticipate that India’s GDP growth will rebound to 10.8 per cent, leading to a gradual normalisation of economic activity,” the agency said.

The growth prospects for general insurance are particularly positive, with the country’s general insurance penetration rate standing at just 0.9 per cent. This is less than half the rate for China (2 per cent), which in turn lags behind developed markets such as the US (8.5 per cent), the report said.

According to Moody’s, insurers in the country have also responded to the crisis by rapidly developing appropriate products and improving their digital offerings.

“This has led to an increase in sales of health and protection policies, which we expect will drive further growth in the future,” it noted.

The report said some Indian insurers’ solvency remains inadequate due to weak profitability, resulting from the intense competition in the market.

The government in July 2020 halted a planned merger between state-owned insurers – National Insurance Co, The Oriental Insurance Co and United India Insurance Co and instead approved a capital injection totalling Rs 12,450 crore (USD 1.65 billion) designed to help improve their profitability, it added.

“We see the capital injection as credit positive as it will allow the insurers to enhance their risk-based pricing and underwriting discipline, helping them generate organic capital growth and attract foreign reinsurance coverage. This will further support their capital adequacy,” the report said.

Profitability and solvency concerns are driving mergers and acquisition in the private sector, and some private players are planning public listings in order to raise capital, according to the agency.

Londe believes that the market will be prime for consolidation in the insurance industry.

“As there is growth available going forward, we do see that mergers and consolidation will actually benefit companies that are better risk managers and much well capitalised,” he added.

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