Insurance sector poised for growth, but profitability concerns persist: S&P

S&P Global Ratings says reforms and low insurance penetration support long-term growth, but underwriting pressures and weak profitability remain key risks for insurers

Market-based reforms and low penetration rates give India's insurance sector significant growth potential. For insurers, however, profitability pressures will persist, especially in the non-life sector, S&P Global Ratings said in a report.

 

In its report, India Insurance Sector Trends: Potential Evident, Caution Warranted, the global ratings agency said liberalisation, increased competition and ongoing regulatory reforms are reshaping India's insurance industry, creating growth opportunities while exposing insurers to underwriting challenges.

 

"Favourable regulatory reforms are attracting foreign capital to India's insurance sector and adding to growth momentum. However, the potential growth trajectory could be tested by underwriting reality," said Trupti Kulkarni, credit analyst at S&P Global Ratings.

   

The agency said profitability pressures are likely to remain acute in the non-life insurance sector, where many insurers continue to rely heavily on investment income to offset weak underwriting performance. This dependence, it noted, underscores the need for sustained improvements in underwriting discipline as competition intensifies.

 

While the overall sector remains adequately capitalised, the ratings agency cautioned that vulnerabilities persist in parts of the industry.

 

"In our view, most insurers have sufficient regulatory solvency, though pockets of vulnerability continue to temper the overall strength of the landscape," Kulkarni said.

 

The agency added that the sector's credit profile could come under pressure from an economic slowdown, narrowing margins, and risks arising from accounting and regulatory transitions, even as structural reforms continue to support long-term growth prospects.