The industry’s gross direct premium income (GDPI) is expected to exceed Rs 3 lakh crore by FY2025, up from Rs 2.4 lakh crore in FY2023, according to rating agency ICRA. It added that private insurers’ combined ratio is likely to improve and the return on equity (RoE) is expected at 11.2-12.8 per cent in FY2024 and 12.5-13.9 per cent in FY2025.
“Most PSU insurers are expected to witness a high combined ratio resulting in net losses, though it will be lower compared to last few years. Moreover, the capital requirement of three PSU general insurers (excluding New India) is estimated at a sizeable Rs. 172-175 billion to meet solvency of 1.50x as of March 2024, assuming 100 per cent forbearance on FVCA,” the report said.
Neha Parikh, vice-president and sector head (financial sector ratings) at ICRA, said ICRA expects the GDPI to expand by a healthy 13-15 per cent to Rs 2.73-2.78 lakh crore by FY2024 and further by 12-14 per cent to Rs 3.06-3.17 lakh crore 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 per cent of the GDPI in FY2025 from 66 per cent in FY2023 and 50 per cent in FY2017,” Parikh added.
The industry’s GDPI grew a sharp 17.2 per cent year-on-year (YoY) in FY2023 to Rs 2.4 lakh crore 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 35,000 crore in FY2023 (higher than Rs 20,000 crore in FY2022 and Rs 7,000 crore in FY2021). The health segment witnessed the sharpest growth, accounting for 48-50 per cent 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, after 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 per cent in FY2024 though better than 133-134 per cent (estimate) in FY2023, while selecting private players in ICRA’s sample set are expected to report a combined ratio of 105-106 per cent in FY2024 (106-107 per cent in FY2023E).
It added that 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 per cent 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 1,74,500 crore over a 3-year period till FY2022.
Parikh said, “ICRA estimates the capital requirement of three PSUs (excluding New India) to be sizeable at Rs 17,200 crore-17,500 crore to meet the solvency of 1.50x as of March 2024, assuming the inclusion of 100 per cent FVCA in the available solvency margin. Excluding this, the capital requirement would be higher at Rs 31,500 crore-Rs 31,700 crore.
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