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Insurance Sector to Benefit From Economic Growth: Moody’s

Mumbai: Robust economic growth and increasing demand for health insurance will drive the insurance sector’s growth in the financial year 2024-25 said a new report from credit rating agency Moody’s. Also aiding the industry’s growth and profitability will be the government’s reforms for state-owned non-life insurers namely Oriental Insurance, National Insurance and United India Insurance Company Ltd.

“We expect Indian insurers to benefit from sustained premium growth, helped by India’s robust economic expansion and rising demand for health insurance,” said Moody’s Ratings on Monday.

Indian insurers' total premium revenue rose 16 per cent to Rs 9.2 lakh crore ($77 billion) in the first eight months of FY 2024, driven by a 21 per cent increase in health insurance and an 18 per cent increase in life new business. This marked an acceleration relative to FY 2023 when premiums were up 8 per cent year on year at Rs 11.2 lakh crore.

The global rating agency expects India's economy to grow by 7 per cent in FY 2024 (year to March 2025), down slightly from 8.2 per cent the previous year. India’s GDP per capita at purchasing power parity is also growing, up 11 per cent year on year to $10,233 in FY 2023.

Mohammed Ali Londe, Moody’s vice-president-Senior analyst told FC, “Our outlook is quite positive for the Indian insurance sector. There has been an increase in risk awareness post-COVID both on the life and health insurance side. Average incomes are also rising will support the demand for health insurance and help sustain premium growth for the industry.”

The government has also proposed to recapitalize the country’s dominant state-owned insurers provided they improve their underwriting profitability. This should encourage more disciplined underwriting in the dominant state sector, where persistently weak prices currently suppress sector-wide profitability. However, operational and legislative obstacles have previously delayed the reform of the state sector and it is unclear when the initiative will yield results, said Moody’s report.

The Indian insurance sector as a whole reported a profit after tax of $6.9 billion in FY 2023, up 41 per cent year on year, helped by robust investment returns. However, it remained loss-making at the underwriting level (premiums minus claims and costs), held back by an increase in claims, which rose 14.5 per cent and 13.8 per cent in the life and non-life sectors respectively. Non-life insurers were also affected by a 32 per cent jump in operating costs and a 19 per cent rise in commissioning expenses.

In FY 2023, the industry raised over Rs 39.8 billion (c.$350 million) of paid-in capital, an increase of 5.3 per cent, and also issued subordinated debt to ensure its capital base keeps pace with its growing underwriting exposure. While the sector will continue to raise capital, its solvency will likely face some pressure because of continued premium volume growth and evolving regulatory requirements, said the rating agency.

( Source : Deccan Chronicle )
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