General insurance sector may see 7-9% growth in GDPI in FY22: Report

Mumbai: Helped by higher growth in health and motor insurance segments, the general insurance industry is likely to clock a 7-9% growth in gross direct premium income (GDPI) in the financial year 2021-22, ICRA Ratings said in a report. In 2020-21, the industry’s total GDPI grew 4% y-o-y to Rs 1.85 lakh crore.

While public sector insurance companies were slower to adjust to an online mode of growth, the reliance on physical meetings were higher which resulted in a 2% y-o-y decline in business (Rs 71,800 crore in FY2021), the credit rating agency said in the report.

The private sector companies reported an 8% y-o-y increase in gross direct premium income (GDPI) to Rs 1.13 lakh crore in the same period, the agency added.

“We expect a 7-9% growth in GDPI in FY2022, supported by growth in health segment and uptick in motor segment,” the agency’s Assistant Vice-President and Sector Head (Financial Sector Ratings) Sahil Udani said in the report.

The analysis is based on the performance of 17 general insurance companies collectively representing 90% of the industry-wide gross direct premium written (GDPI) during the nine month of FY2021, the agency said.  Of the companies analysed, four are from the public sector and 13 from the private sector.

Udani said that despite underwriting losses, the sector is expected to report marginal return on equity (3-4.5%) in FY22, largely supported by investment income which is highly regulated by the IRDAI, the sector regulator.

He said PSU insurers are expected to report marginal GDPI growth of 4-5% in 2021-22 as most of them remain stretched on their solvency profile given reported losses.

The state-owned insurers are expected to post high underwriting losses of Rs 12,400-13,500 crore in the current financial year. This is due to a likely high combined ratio of 121-123% in 2021-22 driven by the probable high claims ratio (on health and motor portfolio) on uncertainty related to second wave of pandemic and motor third-party tail risk, he said.

The report said the private sector players had a higher growth trajectory in 2018-19 and 2019-20, and have gained market share from the PSU players.

Private sector players were able to adapt to the changing business dynamics in the calendar year 2020 at a faster pace compared to the PSU players.

The private sector, with a relatively better risk framework, was able to increase the market share in the fire segment, and health segment. The sector also has a higher share in crop insurance underwritten in FY2021, the agency said.

“The select private insurers (13 private players analysed) are expected to witness high single-digit business growth in FY2022.

“It is expected to be supported by high under penetration across segments in the general insurance industry and particularly likely demand for health segment post-pandemic,” Udani said. The agency also expects consolidation among the smaller players in the industry.

The regulatory approval for foreign joint venture (JV) partner to increase stake to 74% is expected to provide capital and operational control among the smaller entities with a foreign JV, he added.