Life insurers to grow at 10% on APE basis in FY15: ICRA

In its outlook for the life insurance sector, rating agency says industry has realigned their products to meet regulatory guidelines

Life Insurance Industry in India is expected to grow at a rate of 10% in FY15 on an 'Annual Premium Equivalent (APE calculated as value of regular premiums, plus 10% of any new single premiums written for the fiscal year) basis as compared to 3% in FY14, according to ratings agency ICRA.

In its outlook for the life insurance sector, it said that the industry has realigned their products to meet regulatory guidelines and signs of improvement in the economy.

Following the decline in new business in the last two financial years, the industry reported total new business premium (NBP) of Rs 1.2 lakh crore in FY14, a growth of 12% over the previous year. ICRA said that the improvement in NBP was lead by a 22% YoY growth in the single premium business.

Karthik Srinivasan, Sr. VP, Co Head Financial Sector Ratings, ICRA Ltd said, "We believe that the key structural drivers namely an under-penetrated market, favourable demographics, high savings rate coupled with better policy holder friendly products and an expected recovery in the economy provide impetus to the Industry. At the industry level, we expect a growth of around 10% on an APE basis in FY15 and 12-15% over the next few years as the operating environment improves."

On the general insurance side, ICRA said that it is expected to report a moderate growth rate of 12-14% in FY15 as compared to 13% in FY14.

Srinivasan, added that expect recovery in the economy from the later part of the current fiscal and hence, the general insurance industry growth rates could pick up from the next year given the high correlation between the growth rates in general insurance premiums and the National GDP growth rates.

The Gross Premium Written (GPW) for the General Insurance industry stood at Rs 729 billion in FY14, registering a growth of 13% over FY13 with the public sector growing at 10%, according to the ratings agency.

In terms of capitalisation, ICRA said that life Insurance companies maintain comfortable levels. Srinivasan said that they believe that the companies can grow their business without raising external capital over the near to medium term, however in case the hike in Foreign Direct Investment is allowed, it would help the industry raise more risk capital and could aid in improving the insurance penetration faster.

On the general Insurance side, the capitalisation profile measured as the Solvency Ratio remain stronger for the public sector insurers as compared to the private players.

According to Srinivasan, the actual capital requirements will be dependent on the business mix, growth rates and the claims experience.

ICRA estimates that, to maintain a solvency at 1.75 times (as compared to the regulatory requirement of 1.5 times from March 2014) while growing at a CAGR of 15-20% and maintaining similar claims records, the General Insurance industry would require around Rs 75-175 billion of capital over the next five years with the requirement for the private sector pegged at around Rs 4,500-8,000 crore.