While the state-run non-life insurance companies’ profitability may remain muted over the medium term, private insurers in the non-life insurance space are expected to report a return on equity of 13%-14% during the period, according to CareEdge.
“Driven by the improvement in the loss-ratio along with the rising yield on debt investments, the overall profitability is expected to improve for the (non-life insurance) sector. Expense ratio is expected to remain range bound in the near-term. However, the new regulations and the economies of scale kicking in, we expect it to improve in the long-run. Overall private insurers are expected to report return on equity of around 13-14%, while the private insurers profitability is expected to remain muted,” the rating agency said during a webinar– “Non-Life Insurance- Ready to Take-Off” on Tuesday.
According to CareEdge, the improvement in loss ratio along with the rising yield on investment will support the profitability for the insurance companies. Insurance regulator Irdai’s relaxed guidelines for raising subordinate debt and equity along with lower solvency requirements in crop insurance will provide additional growth capital. More flexibility in managing expenses with the proposed removal of commission caps and supporting regulation on ease of doing business will support product innovations. Public sector insurers will be dependent on equity infusion from government and regulatory forbearance.
Also read: 8 suggestions for first time investors in 2023
“Improving profitability, more access to growth capital and increasing regulatory support will boost growth for non-life insurers,” the rating agency said. In the health insurance segment, claim pay-out is stabilising from the peak witnessed during the pandemic. And, increased pricing in group health insurance will drive improvement in the loss ratio. In motor insurance segment, loss ratio is expected to remain constrained due to pricing pressure.
“Motor insurance will benefit from pick up in automobile sales and increased tariff of third party motor insurance. Stricter implementation of the Motor Vehicles Act will further support the segment over medium to long-term,” the rating agency said during the webinar.
CareEdge said the non-life insurance sector is expected to grow at around 14-15% for financial year 2022-23, driven by the regulatory initiatives carried out by the insurance regulator and increased per-capita income levels. Gross direct premium is expected to grow by 12%-15% over the medium term.
Notably, Irdai has recently raised the threshold limit for raising the subordinate debt, relaxed solvency requirements for crop insurance and increased limits for raising equity from investors, supporting regulations to raise capital by insurance companies.
Also read: Proof that you are earning less from Small Savings Schemes since 2019
The rating agency, however, said performance of the non-life insurers will remain sensitive to external shocks such as uncertain geopolitical environment, high inflation, and rising cost of capital.
