Poor underwriting results over recent years, following the deregulation of rate-setting, has led rating agency Standard & Poor's to downgrade its outlook for the Indian non-life insurance industry to negative from stable.
The combined ratio, or the ratio of losses and expenses to earned premiums, was 121 per cent during 2010 for Indian general insurance companies. Anything over 100 per cent indicates underwriting loss.
“We believe underwriting performances are unlikely to improve significantly in the next 12 months, despite signs that prices are stabilising. The overall industry remains profitable through investment income, but that can leave it vulnerable to investment market shocks, the review said.
Still, the review indicates, despite the weak pricing, the growth in premium collection is likely to remain strong. For, insurance penetration in India is as low as 0.6 per cent of Gross Domestic Product.
“Direct premiums rose 14 per cent in the year ended March 2010. We expect such growth to continue because the (low) penetration rate,” the review said.
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India had 24 non-life insurers as of last September. Government-owned insurers command 60 per cent of the market.
| THE BIGGER PICTURE ASIA-PACIFIC LIFE INSURANCE OUTLOOK | ||
| 2010 | 2011 | |
| Australia | Stable | Stable |
| China | Stable | Positive |
| Hong Kong | Stable | Stable |
| India | Stable | Negative |
| Japan | Stable | Negative |
| Korea | Stable | Stable |
| Malaysia | Stable | Positive |
| New Zealand | Stable | Negative |
| Philippines | Stable | Stable |
| Singapore | Stable | Stable |
| Taiwan | Stable | Stable |
| Thailand | Stable | Stable |
S&P also indicated that although companies in the Indian market were well capitalised, therte would be pressure if premium growth accelerates, but operating performance remains subdued.
“The negative outlook on India could change quickly if pricing improves and underwriting results significantly strengthen, given a low penetration rate,” it said.
ELSEWHERE
Globally, considering the several sudden upsets in the region over the past year, S&P also revised the outlooks for Japan and New Zealand to negative from stable.
“For Japan, the outlook factors in a likely deterioration in earnings and capital as insurers start to meet the costs of the recent earthquake and tsunami. We believe the disaster could undermine companies' financial profiles, limit the availability of reinsurance, and constrain pricing. The negative outlook on New Zealand indicates that earnings and access to reinsurance are also likely to weaken, following recent earthquakes,” the review said.
China and Malaysia were the only countries where the report showed an upgrade to positive from stable, reflecting their strong growth momentum.
The report includes a comprehensive review of both industry and economic risk scores, along with market outlook, for 12 non-life insurance markets — Australia, China, Hong Kong, India, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Taiwan, and Thailand.