Rating agency Icra Ltd. expects general insurance industry’s GDPI to grow 10-12% year-on-year in FY23, led by higher growth in health and commercial business segments with increasing awareness of medical insurance and uptick in economic activity.

Already the resumption of economic activity after a fall in covid-19 infections has led to the industry’s gross direct premium income (GDPI) growth recovering an estimated 11% in FY22 compared with a 4% growth in the previous year.

The GDPI of PSU insurers is expected to grow at a moderate 4-6% in the current financial year, while that of private insurers is estimated at 13-15%. However, economic uncertainty due to structural challenges in the automobile industry and rising commodity prices amid geopolitical crisis pose downside risk to this growth rate.

“The GDPI of private sector insurers grew at a faster rate of 14% (E) compared to the growth of 5% (E) witnessed by public sector undertaking (PSU) insurers in FY2022. The gross premium from the health segment experienced a steep Y-o-Y growth of 26% in 11M FY2022, while the fire segment premium grew by 8% in 11M FY2022 despite partial lockdowns across the country. Post the decline in FY2021, the motor business reported muted growth of 4% in 11M FY2022 on the lower base due to structural challenges in the automobile industry. However, the GDPI from the crop business declined by 20% in 11M FY2022 mainly due to the significant decline in the PSU business,” said Sahil Udani, assistant vice president & sector head, financial sector ratings, Icra.

Icra analysed performance of 18 general insurance companies collectively representing about 90% of the industry-wide gross direct premium written (GDPW) during 9M FY22. Of these, four were from the public sector and 14 from private sector. Industry performance encompasses all the players in the general insurance industry, while the financial performance analysis section and outlook is pertaining to the 18 entities listed earlier.

The combined ratio across industry deteriorated to 119% in 9M FY22 from 112% in 9M FY21, with increase in health claims. Covid claims accounted for 6% of the total number of health claims paid out in FY21 and are expected to form 11-12% of the total number of health claims paid in FY22. The combined ratio for the industry is expected to improve in FY23, driven by lower health claims and likely improvement in risk pricing by insurers.

Icra expects the combined ratio for PSU insurers to improve marginally to 124-126% in FY23 from 127% (E) in FY22 supported by various cost-cutting measures directed by the Centre and better claims performance. However, PSU insurers are expected to continue to post net losses in FY23, with negative RoAE. Private players, with better risk pricing and underwriting practices, are expected to report a combined ratio of 106-108% in FY2023 with RoAE of 12-14%.

“With the deterioration of the combined ratio, the PSU insurers reported high net losses in 9MFY2022. To augment the solvency profile, the Government of India (GoI) infused fresh equity capital of Rs. 5,000 crore in weaker PSU insurers in March 2022. Accordingly, ICRA expects the solvency position of PSU insurers to improve to ~1.67x or ~1.39x as on March 31, 2022, considering 100% or 50% Fair Value Change Account (FVCA) forbearance, respectively. The ratings agency further, expects government support to weak PSU insurers in the form of regulatory forbearance or fresh capital in FY2023,” Udani said.


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