Life insurers' NBP set to expand 14% in FY22 on higher growth in H2: Icra

While the life insurance industry has seen muted growth of 4 per cent in new business premiums (NBP) so far, it is expected to close the financial year (FY22) with 14 per cent growth in NBP, backed a pick-up in business in the second half of the fiscal, rating agency Icra said.

“The NBP is estimated to grow 14 per cent in FY22 to Rs 3.18 trillion, as the nominal gross domestic product (GDP) is projected to grow by 16 per cent. We expect the NBP growth to accelerate in H2, as typically Q4 has always been the strongest quarter for life insurance business growth,” said Sahil Udani, Assistant VP, ICRA.

So far in the first seven months of the fiscal (7MFY22), NBP of the life insurers totalled to Rs 1.53 trillion, up 4 per cent year-on-year, primarily due to the subdued performance of the insurers during Q1FY22 because of the second wave of the pandemic. Life insurers had posted a 7 per cent YoY growth in NBP in FY21, compared to 21 per cent growth in FY20.

As far as profitability is concerned, the rating agency expects the private players’ profitability to remain subdued in FY22 due to high claims in Q1. Life insurers have shelled out more than Rs 11,000 crore to settle Covid-related death claims, with a huge chunk of them coming this financial year when the second wave ravaged through the country.

Insurers have been keeping excess mortality reserves and the extra provisioning has resulted in muted profitability for most, especi­ally in the April-June quarter (Q1FY22), when the second wave hit. While the claims burden has come down now, insurers are still holding sufficient reserves so that they can cushion their balance sheet against any risk in the future with regards to the Covid-19 pandemic.

While the covid related death claims have had an impact on the profitability of life insurers, the solvency has not faced the same impact. “Median solvency levels for select private players remained at 2.0-2.1x for the last three years. The larger players have been reporting back-book surplus higher than the new business strain, which had helped meet the capital requirement for the required growth”, said Udani.

While the current solvency remains comfortable, rating agency ICRA said the solvency levels for the industry would be contingent on the underwriting losses incurred on account of Covid-19 pandemic.