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India’s non-life insurance market has been given a “negative” segment outlook by credit ratings agency A.M. Best despite robust growth over the past few years.
In a statement, A.M. Best said growth momentum has not been limited to business lines that benefited from government initiatives or tariff adjustments – it was also robust in other lines of business.
However, the credit rater expressed concern over the quality of growth, as technical profitability remains poor and in many cases weaker than in 2013. It also said volume of motor third party reserves held for past policies remains large relative to earned premium and capital.
“Unfavourable reserve adjustments have the potential to significantly impact current performance and capital, especially given the lack of earnings buffer from other business lines,” A.M. Best added.
The credit rater was optimistic that the country’s insurers may benefit from legislative initiatives aimed at motorists and the motor insurance market.
“Market participants are hopeful, although some have expressed concern about how effective enforcement any new regulations will be, given the lack of enforcement on existing motor vehicle rules,” it said.
Despite the negative outlook, A.M. Best said some non-life insurance firms may still experience positive momentum. They may not necessarily be among the market’s largest in terms of premium share, but “they have the demonstrated capability to control the quality of their growth by using a comprehensive and methodical approach across their operations to generate risk-adjusted returns.”
“New entrants to the market seem to aim at heavily leveraging technology and alternative distribution to compete on the basis of analytics, risk-segmentation and risk-adjusted pricing,” the credit rater said. “The current size of these companies is indeed still very small compared with incumbents, but it will be interesting to see whether they will be part of a changing approach to growth in the Indian non-life market.”
