Neha Parikh, vice president and sector head – Financial Sector Ratings, ICRA, says: “ICRA expects the GDPI to expand by a healthy 13-15% to Rs. 2.73-2.78 trillion by FY2024 and further by 12-14% to Rs. 3.06-3.17 trillion by FY2025. Driven by the improving distribution network and better financial profile, the market share of private insurers is expected to expand further to 70% of the GDPI in FY2025 from 66% in FY2023 and 50% in FY2017”
Mumbai:
ICRA expects the Indian industry’s gross direct premium income (GDPI) to exceed Rs. 3.0 trillion by FY2025, up from Rs. 2.4 trillion in FY2023.
Private insurers’ combined ratio is likely to improve and RoE is expected at 11.2-12.8% in FY2024 and 12.5-13.9% in FY2025.
ICRA sample set includes 13 private insurers accounting for 94% of the private sector GDPI (excluding stand alone health insurers (SAHI).
Moreover, the capital requirement of three PSU general insurers (excluding New India) is estimated at a sizable Rs172-175 billion to meet solvency of 1.50x as of March 2024, assuming 100% forbearance on Fair Value Change Account (FVCA).
FVCA is the unrealised gain on equity investments, which is not allowed to be included in the solvency calculation.
Neha Parikh, vice president and sector head – Financial Sector Ratings, ICRA, says: “ICRA expects the GDPI to expand by a healthy 13-15% to Rs. 2.73-2.78 trillion by FY2024 and further by 12-14% to Rs. 3.06-3.17 trillion by FY2025. Driven by the improving distribution network and better financial profile, the market share of private insurers is expected to expand further to 70% of the GDPI in FY2025 from 66% in FY2023 and 50% in FY2017.”
The industry’s GDPI grew a sharp 17.2% year-on-year (YoY) in FY2023 to Rs. 2.4 trillion with the resumption of economic activity after the waning of Covid-19 infections. In absolute terms, the incremental growth in the GDPI was at an all-time high of Rs 350 billion in FY2023 (higher than Rs. 200 billion in FY2022 and Rs. 70 billion in FY2021).
The health segment witnessed the sharpest growth, accounting for 48-50% of the incremental GDPI in FY2023, driven by rising awareness regarding health insurance. The motor segment, which was subdued due to the pandemic-related lockdowns, also picked up pace.
The net claims ratio improved with the normalisation of health claims, partially offset by higher claims in the motor segment with increased vehicle movement, post the pandemic.
Although the claims ratio improved, the underwriting losses of public sector undertaking (PSU) insurers increased because of wage revision and payment of associated arrears.
ICRA expects the combined ratio of PSU insurers to remain weak at 125-127% in FY2024 though better than 133-134% (estimate) in FY2023, while select private players in ICRA’s sample set are expected to report a combined ratio of 105-106% in FY2024 (106-107% in FY2023E).
Profitability is likely to be supported by investment income with the adjusted return on equity (RoE) of private players expected to improve to 11.2-12.8% in FY2024. While the solvency profile of private insurers remains comfortable in relation to the regulatory requirement of 1.50x, the high net losses incurred by PSU insurers (excluding New India) led to a negative solvency ratio of 0.25x (excluding fair value changes on investments) as of December 2022. The solvency of PSU insurers has previously been supported by infusions by the Government of India, which provided Rs. 174.5 billion over a 3-year period till FY2022.
Parikh added: “ICRA estimates the capital requirement of three PSUs (excluding New India) to be sizeable at Rs. 172-175 billion to meet the solvency of 1.50x as of March 2024, assuming the inclusion of 100% FVCA in the available solvency margin. Excluding this, the capital requirement would be higher at Rs. 315-317 billion.”