Life Insurers New Business to Grow 15-18%: ICRA

Ratings agency, Icra, has pitched a 15-18% 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% in FY18, much higher than the 14.4% 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.

Crop insurance business, which grew by 6.5 times, registered the fastest growth by acquiring a 12% market share in the general insurance business in FY17 from 2% 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% from 23% in FY16, with LIC registering a sharper new business growth at 27.4% as compared to the private players in the industry, who grew at 23.4%.

ULIP business of the life insurers saw an improvement in growth to 7.2% in FY 17 from 4.5% 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% in FY 17 from 6.5% 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.