Read the latest edition of AIR and MEIR as an Interactive e-book

Feb 2023

India: RI market to grow at CAGR of 11-14% for next 5 years

Source: Asia Insurance Review | Sep 2017

India Reinsurance

Reinsurance premiums in India are projected to increase at 11-14% CAGR over the next five fiscal years to hit INR700 billion (US$11 billion) by 31 March 2022, says state-owned GIC Re in its draft red-herring prospectus.
   Citing CRISIL, the prospectus says the drivers of growth for domestic reinsurance premiums over the next five years are expected to be:
  • Healthy Indian GDP growth and rising incomes;
  • Low domestic insurance penetration;
  • Large catastrophic events increasing need for insurance;
  • Rainfall irregularities and change in weather patterns necessitating crop insurance; and
  • Impact of entry of more players. 
   New business opportunities may also emerge in areas such as cyber security, Big Data and smart city infrastructure. 
Overall, the strong growth in the domestic non-life business is expected to have a positive impact on insurance premium ceded to reinsurers, and retention ratios could also increase from the levels of the financial year ended 31 March 2017 (FY2017).
   In comparison, the size of the Indian reinsurance market was estimated to be approximately INR388 billion in FY2017. The reinsurance market in India grew at a healthy 15% CAGR in the 10 years ended FY2017. Reinsurance of nonlife insurance business accounted for 95% of the total premium ceded in FY2017.
However, there are challenges. According to CRISIL Research, the reinsurance industry in India faces the following challenges:
Low risk awareness among retail and business customers
Despite increasing occurrence of natural catastrophes and greater risks faced by businesses and individuals, risk awareness and the need to mitigate the same remain low. To illustrate, retail home loans worth approximately INR14.3 trillion were outstanding in India as of March 2017, whereas retail property insurance premiums were not even a fraction of this amount. In the corporate sector, insurance penetration is at less than 1% of industrial GDP. 
Pricing discipline
Combined ratios in the Indian market were 116% in aggregate for non-life insurers in FY2017. In the view of CRISIL Research, for long-term sustainability, the Indian insurance industry has to see greater pricing discipline. 
Competition from foreign reinsurers
With eight foreign reinsurers and Lloyd’s being allowed to set up branch offices in India, the focus of these players on the Indian market is likely to increase. Although these reinsurers previously sourced business in India from overseas, setting up branch offices will bring them closer to their customers. Any increase in price competition from these foreign reinsurers would hurt the industry.
Restrictions on reinsurance
Reinsurance of government-sponsored health schemes is not allowed in India. In FY2016, these schemes accounted for about 10% of total health insurance premiums of non-life insurers in India. Further, in the life insurance space, growth has been limited because of better geographical distribution of policies and smaller insured amounts in comparison to nonlife insurance, which reduces reinsurance need. Additionally, only the risk portion of life insurance can be reinsured and most life insurance policies sold in India are protection-cum-investment products. 
Large part of crop insurance premiums being reinsured
Crop insurance accounted for 35-40% of reinsurance premiums in India in FY2017, as per CRISIL Research estimates. Given the high amount of crop insurance being reinsured, any increase in underwriting losses in crop insurance would adversely impact the Indian insurance and reinsurance industry.
Practice of co-insurance
The prevalence of co-insurance in India may reduce demand for reinsurance in India
GIC Re files for IPO
GIC Re is the largest reinsurance company in India in terms of gross premiums accepted in FY2017, accounting for about 60% of the premiums ceded by Indian insurers to reinsurers during the year. It is also an international reinsurer that underwrote business from 162 countries as at 31 March 2017. It ranked as the 12th largest global reinsurer in 2016 and the 3rd largest Asian reinsurer in 2015, in terms of gross premiums accepted. 
   GIC Re filed its IPO application on 7 August with bankers saying that it could raise more than US$1 billion. The government will sell about 107.5 million shares in GIC Re’s IPO, while the insurer will sell 17.2 million new shares, comprising a total 124.7 million, or 14.22% of the company’s post-issue share capital, according to the filing. A 
| Print | Share

Note that your comment may be edited or removed in the future, and that your comment may appear alongside the original article on websites other than this one.


Recent Comments

There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.