May 31, 2019
India’s non-life insurance market is marked by continued reliance on realised and unrealised investments gains to offset technical losses, potential short-term disruption from regulatory enhancements and persistently competitive and underperforming core business lines of motor and agriculture, notes international rating agency AM Best. In its Best’s Market Segment Report, titled “Market Segment Outlook: India Non-Life Insurance”, the rating agency says that it is maintaining a negative market segment outlook.
The market’s combined ratios has fluctuated between 110 and 125 over the past five years, and most insurers have become dependent on investment income to generate profitability. The sustainability of such earnings may put the long term viability of many insurers into question.
India’s non-life insurers have been one of the main beneficiaries of the country’s fast growing economy, and the industry has seen a substantial increase in insurable risks. However, heavy competition and cumbersome regulatory hurdles for product development hinder technical performance, with most companies relying on strong investment income derived from the exceptional performance of Indian equities, which have shown sustained outperformance relative to global indices.
Despite the negative outlook, AM Best recognises that some non-life insurers still may experience growth. The international rating agency says that profitability and capital strength of companies that demonstrate sound risk management practices and disciplined underwriting likely are to improve steadily.