Ratings agency, Icra, has pitched a 15-18 per cent growth
rate of new business of Life insurance sector
on an Annualised Premium Equivalent (APE) basis for FY18.
Whereas the general insurance
industry is expected to grow at 20 per cent in FY18, much higher than the 14.4 per cent growth
seen in FY 17.
With the key structural drivers namely an underpenetrated market, favourable demographics, improving savings rate coupled with expected recovery in the economy amidst steady push by the government and the insurance companies to improve the penetrations will aid the Industry, said Karthik Srinivasan, Senior VP and Group Head Financial Sector Ratings, Icra.
business, which grew by 6.5 times, registered the fastest growth
by acquiring a 12 per cent market share in the general insurance
business in FY17 from 2 per cent market share in FY16. However, in FY18 crop insurance
business is expected to grow at a slower pace as the availability of reinsurance capacity would be a key requirement.
The solvency indicators of PSU insurers has seen a sharp decline, owing to rise in claims and changes in actuarial estimates with two of the players reporting solvency levels
below the regulatory minimum during the year. However, many of the players have managed to raise capital from their promoters or raise Tier II bonds
to improve their solvency profile. General Insurance
companies cumulatively raised around Rs 21 billion of Tier II bonds
till since the regulations were announced.
Select private players continued to demonstrate better underwriting performance with underwriting losses standing much lower at Rs 25 billion in FY2017 vis-a-vis underwriting losses of Rs 108 billion for PSUs
during this period, said Icra.
With few of the companies considering listing themselves on the stock exchanges, we believe that in addition to providing a route for the promoters to monetise their investments, we could also see some rationalisation in product pricing as companies would also look to shore up their net profits, said Icra.
In FY 17, the new business premium growth
of the entire life insurance
industry stood at 26 per cent from 23 per cent in FY16, with LIC registering a sharper new business growth
at 27.4 per cent as compared to the private players in the industry, who grew at 23.4 per cent.
ULIP business of the life insurers saw an improvement in growth
to 7.2 per cent in FY 17 from 4.5 per cent in FY 16, owing to a change in the minimum holding period for ULIP schemes, and improvement in market performance. However, the non-linked premium saw a sustained growth
of 6.6 per cent in FY 17 from 6.5 per cent in FY 16.
While agents remain the key drivers for business for the individual business of LIC and smaller players, bancassurance channel remains strong for the larger bank promoted life insurance
companies, said Icra.
“While the solvency levels
of Life Insurance
players would decline over period of time as they scale up the mix of traditional products, we believe that the companies can grow their business without raising external equity capital over the near to medium term. They also have the flexibility to raise Tier II bonds
to bolster the regulatory solvency levels, said Karthik Srinivasan.