COVID-19 aggravates pressure on non-life insurers -- AM Best

The ongoing COVID-19 pandemic in India is likely to exacerbate pressure on the country's non-life insurers' underwriting and investment performance, leading AM Best to maintain its negative outlook on this market segment.

In the new Best’s Market Segment Report, “India Non-Life Insurance”, AM Best states that historically, India’s economic growth fundamentals have spurred non-life insurance market growth. Bucking this was the fiscal year ended 31 March 2021 (FY2021) when despite India’s GDP contracting by approximately 8%, the non-life insurance market achieved a positive, albeit muted, growth rate of over 5%.

Prospectively, AM Best expects the trajectory of non-life insurance premiums in India to continue to be one of growth over the long term with rising consumer awareness and accessibility of insurance products.

Notwithstanding this, factors supporting AM Best’s negative outlook on India’s non-life insurance market include competitive market conditions, persistently poor pricing discipline and reliance on investment activities for profitability, which have been prevalent for a number of years. More recent market dynamics also include heightened economic uncertainty and COVID-19 implications, which are expected to weigh further on non-life insurers.

Short-term

Although the segment consists of a diverse range of insurance companies, the general operating environment in India over the short term will present clear challenges for non-life insurers’ earnings and capital positions, says the global credit rating agency.

Positive factors partially offsetting this assessment include government and regulatory initiatives aimed at increasing insurance penetration and accessibility through new products and schemes. Additionally, AM Best expects regulatory and market advancements to continue to drive investment in digital infrastructure, which will likely support Indian non-life insurers’ online sales, operations and risk management.

Medium-term

Overall, AM Best expects the Indian non-life market to face several headwinds over the medium term. Factors that could lead AM Best to revise its segment outlook to 'Stable' from 'Negative' include evidence of sustainable improvement in underwriting performance, supported by better pricing discipline, as well as an improved balance of overall earnings and stabilised economic indicators.

Source: Asia insurance review