The latest regulatory reforms in India have improved the ability of Indian primary insurers to take advantage of the country's strong economic growth, a credit positive for the sector, says Moody's Investors Service in its first published report on the Indian insurance market.
"Regulations introduced since 2015 have facilitated the access of the insurers to capital and reinsurance cover, while encouraging them to improve the quality of their investment assets and reserve adequacy," said Mr Mohammed Ali Londe, a Moody's Assistant Vice President and Analyst.
"These developments will gradually allow Indian insurers to reap greater benefits from India's strong economic expansion and to increase take-up of insurance from current low levels," he said.
Moody's conclusions are contained in its report , "Insurance -- India, Developing regulatory landscape and strong economy supportive for insurers", released yesterday.
Moody's expects the non-life insurance sector to maintain its double-digit growth over the next 3-4 years, supported by the expectation that India's (Baa2, Stable) real GDP will expand by 6.7% in the fiscal year ending 31 March 2018. Furthermore, annual insurance premium penetration remains comparatively low in India at just 3.5% of GDP, and is likely to increase in line with household spending.
In the year to March 2017, the top 10 Indian non-life insurers reported 30% growth in gross written premiums to INR1,009.3 billion (US$15.6 billion) whilst their top five life counterparts reported a 14% increase in GWP to INR3,740.8 billion.
Regulatory reforms are also improving the sector's access to capital. For example, in 2015, the IRDAI raised the maximum stake that foreign investors can hold in Indian insurers to 49% from 26%. The regulator has also made it easier for Indian insurers to launch initial public offerings (IPOs) and for state-owned insurers to privatise, leading to six IPOs over the past 14 months and a further three expected in 2018.
Moody's also says that reinsurance liberalisation will benefit the non-life sector. In 2017 the IRDAI admitted eight private reinsurers to the Indian market, which had previously been dominated by the state-owned General Insurance Corporation of India. The arrival of major global reinsurers will improve Indian insurers' access to reinsurance, supporting their management of underwriting risk. This should also help gradually reverse a recent deterioration in the non-life sector's underwriting performance due to rising claims expenses. Moreover, asset quality and reserving will strengthen.
Regulatory risk-based capital (RBC) rules scheduled to take effect in the fiscal year ending March 2021 will encourage insurers to adopt eligibility criteria for their investment assets that will improve the quality of their investment portfolios.
Separate rules requiring insurers to adopt external actuarial reserving assessments, expected to take effect from March 2018, will likely increase reserving requirements for some in the short-term, putting their profitability under pressure. However, in the longer term, Moody's expect the actuarial reserving to strengthen reserve adequacy and improve pricing discipline, leading to stronger underwriting results.