India’s public sector weighs on growth

February 15 2019 by Nick Ferguson

For the first time, India’s private sector property and casualty insurers won a bigger market share than their public sector competitors in 2018.

Overall, the P&C market grew 13.4% to US$23.6 billion, according to data compiled by InsuranceAsia News from the regulator’s monthly releases. The private sector expanded at 25% compared to just 2% for the state-owned players.

The delayed merger of National Insurance, United India Insurance and Oriental Insurance is largely responsible for the slowdown. All three companies have lost market share since 2017 amid the uncertainty, which has been made worse by a hiring freeze imposed by the finance ministry since last year. Growth has slowed from 14% in 2017, which was already below the pace of the rest of the market, to just 2% in 2018.

This has acted as a drag on the whole sector, with overall P&C growth in 2018 slowing considerably from the 23% recorded in 2017.

However, the finance ministry announced in its latest budget that the merger would be completed during the next fiscal year — which means before the end of March 2020.

Based on the 2018 numbers, the merged company would command the equivalent of roughly US$6.4 billion in premiums, making it almost twice the size of the next biggest P&C insurer, New India Assurance, which is also state-owned. By comparison, its biggest private sector competitor, ICICI Lombard General Insurance, wrote US$2 billion of business in 2018.

The two specialist state-owned insurers — Agricultural Insurance Company of India (AIC) and Export Credit Guarantee Corporation of India (ECGC) — also contributed to the weak growth of the public sector after both recorded a fall in premiums for the year.

The change in fortune has been particularly stark for AIC, which had previously benefited from the prime minister’s crop insurance scheme. Premiums grew 40% in 2017, but it has since withdrawn from the market and saw premiums fall by more than 15% in 2018.

While the rapid growth of the private sector continues to attract foreign interest, some companies are choosing to exit the market. IAG is seeking to offload its stake in SBI General, as part of a wider plan to exit its investments in Asia, while Munich Re is said to be considering the sale of its stake in health insurance joint venture Apollo Munich.

Even so, there are still some foreign companies willing to commit more capital to the market. Ageas acquired 40% in Royal Sundaram General Insurance in November, Generali upped its stake to the joint-venture limit of 49% last June and Sompo Japan Nipponkoa acquired a further 6% in Universal Sompo General Insurance from Karnataka Bank in May.

In the health sector, premiums grew by more than 40% in 2018. Even market leader Star Health & Allied Insurance recorded premium growth of more than 35%, while Religare grew at twice that pace.

On the life side, premiums grew by almost 35% for the private sector, while the public sector LIC of India saw premiums fall by more than 8% — and, given that it controls close to two-thirds of the entire life market, this dragged the overall market down to just 0.2% growth.

With even stronger growth in the private life market than on the P&C side, foreign investors are showing more interest in the opportunity here. MetLife is looking to increase its stake in the joint venture PNB MetLife after a failed initial public offering, there is a bidding war for a 23% stake of Canara HSBC Oriental Bank of Commerce Life and Warburg Pincus bought a 26% stake in IndiaFirst Life last year.

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