Indian insurance premium volumes grow 32% YOY, AM Best warns on risks

The Indian insurance market has recorded significant premium growth in between April 2016 and January 2017, but AM Best warns on growing risks.

During the period, the insurance industry in India grew earned premium income by 32 percent to Rs 1.04 lakh crore ($15.5 billion), a growth of 31.7 percent from Rs 78,709 crore in April-January of the previous year, according to data by India’s insurance regulator IRDAI.

State-run public sector insurance companies had market share of 46.99 percent where private sector general insurers were at 42.03 percent.

The data comes out as AM Best said that the Indian non-life market is stalling. A three-year trend of performance improvements in India’s non-life market has come to a halt, as reflected by weakening industry profitability ratios since 2015, the ratings agency said on Feb. 14. According to the briefing, this could result in a reduction in insurance companies’ risk-adjusted capitalization positions as insurance risk growth (approximated by premiums) outpaces capital growth.

AM Best’s report titled “Performance in the Indian Non-Life Market is Stalling,” states that premium growth in India’s non-life insurance market has been led by the unprofitable health insurance business, which has grown into the single largest business line, ahead of motor own damage. This has added to insurance risk growth in the market but has not contributed to capital growth. It will be interesting to see how the new government-supported crop insurance scheme will impact this dynamic.

“Crop insurance and health insurance will be the major drivers for the industry growth in India this year,” Kalpana Sampat, the new CEO of Swiss Re’s India branch, told Intelligent Insurer.

AM Best said that the performance deterioration seems to be mostly concentrated among the better capitalized government-owned insurers, which roughly underwrite 50 percent of the market’s non-life insurance risks, while holding slightly more than 70 percent of the industry’s capital and surplus. Nevertheless, improving operating performance is important for these players as their risk-adjusted capitalization is on a declining trend and the high proportion of fair value reserves leaves their risk-adjusted capitalization more vulnerable to capital market volatility.