India's strong economy and evolving regulatory regime continue to support growth for its insurance and re-insurance sectors, Moody's Investors Service said on Tuesday.
Robust GDP expansion, coupled with current low insurance penetration, should support double digit growth for the non-life sector over the next three to four years, it said.
During fiscal 2018, total gross premiums for the non-life and life insurance sectors grew 11.5 per cent to Rs 6.1 trillion (94 billion dollars), bringing the five-year compound annual growth rate (CAGR) to 11 per cent, Moody's said in the report titled "Insurance -- India: Continued regulatory evolution is credit positive for India's insurance sector."
India’s (sovereign rating: Baa2, Stable) real GDP is expected to expand by 7.4 per cent and 7.3 per cent in fiscal 2019 and 2020, making the Indian economy one of the world’s fastest-growing.
"The Insurance Regulatory and Development Authority of India (IRDAI) is proactively introducing regulations that will support insurers' balance sheets and improve their access to capital, a credit positive," said Mohammed Londe, a Moody's Assistant Vice President and Analyst.
Liberalisation of the reinsurance sector -- with the admission of foreign reinsurers since 2017 and IRDAI's steps to ensure that they can compete with incumbents -- will specifically benefit the non-life sector. Having admitted 10 foreign reinsurers to the Indian market since 2017, in December 2018 IRDAI took steps to ensure the newcomers can compete effectively with incumbents.
Currently, India's dominant reinsurer, state-owned General Insurance Corporation of India (GIC Re), has first right of refusal over reinsurance business. Under the new IRDAI measures, GIC Re will retain first right of refusal, but will lose business if it is unable to match lower rates offered by foreign reinsurers. This will improve Indian insurers' access to reinsurance.
Regulatory reforms will also improve the sector's capital strength, said Moody's. In 2015, IRDAI raised the ceiling on foreign ownership of Indian insurers to 49 per cent from 26 per cent, encouraging global players to buy holdings in local entities.
Separate measures have made it easier for insurers to launch initial public offerings (IPOs), leading to a wave of transactions. The changes will bolster insurers' capital, and will also give them access to foreign expertise.
In addition, IRDAI's plan to introduce a new risk-based capital (RBC) system, similar to Solvency II, is likely to improve insurers' risk management. These measures are credit positive for the sector.
Finally, the government's launch of a new programme in 2018 to provide health insurance for 100 million families is credit positive as it will help grow health premiums and provide insurers with cross-selling opportunities.
Ayushman Bharat, or National Health Protection Mission (AB-NHBM), launched in September 2018, aims to provide 100 million families with up to Rs 500,000 of health insurance coverage each year.
The move is credit positive for India’s insurers because it will help grow health premiums and provide them with cross-selling opportunities.
Most Indian states have chosen to run the scheme as a trust model, which will limit the full growth potential for insurers, said Moody's.