Saturday, January 20, 2018

Regulatory reforms and strong economy boost insurers in India

Regulatory reforms in India have improved the ability of Indian primary insurers to take advantage of the country’s strong economic growth, says Moody’s.

The rating agency forecasts the non-life insurance sector to maintain its double-digit growth over the next three-to-four years, supported by the expectation that India’s real GDP will expand by 6.7% this fiscal year.

“Regulations introduced since 2015 have facilitated the access of the insurers to capital and reinsurance cover, while encouraging them to improve the quality of their investment assets and reserve adequacy,” says Mohammed Ali Londe, a Moody’s analyst.

Moody’s also says that reinsurance liberalisation will benefit the non-life sector. In 2017, the Indian regulator admitted eight private reinsurers to the Indian market, which had previously been dominated by the state-owned General Insurance Corporation of India.

The arrival of major global reinsurers will improve Indian insurers’ access to reinsurance, says Moody’s, supporting their management of underwriting risk. This should also help gradually reverse a recent deterioration in the non-life sector’s underwriting performance due to rising claims expenses.

Moreover, asset quality and reserving will strengthen. Regulatory risk-based capital (RBC) rules scheduled to take effect in the fiscal year ending March 2021 will encourage insurers to adopt eligibility criteria for their investment assets that will improve the quality of their investment portfolios.

Separate rules requiring insurers to adopt external actuarial reserving assessments, expected to take effect from March 2018, will likely increase reserving requirements for some in the short-term, putting their profitability under pressure.

However, in the longer term, Moody’s expect the actuarial reserving to strengthen reserve adequacy and improve pricing discipline, leading to stronger underwriting results.

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