Global credit ratings agency AM Best has revised the industry outlook for India’s non-life insurance sector to Stable from Negative, citing improving fundamentals despite ongoing underwriting challenges.
Key Drivers Behind the Upgrade
The revised outlook reflects several positive developments
- Robust growth potential driven by economic development and rising insurance demand
- Favourable regulatory changes that streamline product development and support cost optimisation
- Enhanced financial flexibility due to improved access to capital
Despite persistent competitive pressures, these factors have strengthened the sector’s resilience and long-term prospects.
Regulatory Reforms Boost Capital Access and Innovation
A significant factor in the upgrade is the recent regulatory shift allowing insurers to issue preference shares and subordinated debt without prior approval from the Insurance Regulatory and Development Authority of India (IRDAI).This change reduces regulatory overhead and enables faster fundraising, improving liquidity management and capital adequacy during periods of stress.
Additionally, IRDAI’s efforts to accelerate the product development process are expected to help insurers respond more swiftly to market needs. These reforms support the regulator’s vision of Insurance for All by 2047, aiming to boost insurance penetration and promote financial inclusion.
Improved Market Responsiveness
Chris Lim, associate director at AM Best, noted
With the process of getting new product offerings to market expedited, insurers will be able to more quickly capture niche segments. Companies also will be able to reprice products according to their loss experience more effectively and raise rates in a timely manner should loss experience be worse than expected.
Ongoing Underwriting Challenges
Despite the positive shift, downside risks remain. Underwriting margins are expected to stay constrained due to
- Excessive market competition
- Price inadequacy in key lines
- Rising reinsurance costs
The two largest segments—health and motor insurance—continue to report weak underwriting performance. While health claims have declined post-pandemic, profitability remains under pressure from sustained medical inflation.
Investment Income to Support Earnings
Although underwriting results remain a drag, investment returns are expected to continue serving as a strong contributor to overall profitability, helping offset technical losses.
Resilience Amid Challenges
AM Best acknowledges that while structural issues persist, recent trends demonstrate the sector’s ability to adapt and remain financially resilient. The combination of regulatory support, capital strength, and growth potential outweighs near-term profitability concerns, justifying the upgraded outlook.
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