Latest News

ICRA says PSU Insurance Companies may need Rs.100 billion Capital by March 2025


➡️ Click here to join our Whatsapp Group

Neha Parikh, Vice President and Sector Head of Financial Sector Ratings at ICRA, predicts that the market share of private insurers in terms of Gross Direct Premium Income (GDPI) is expected to increase to 69% in FY2025 and 71% in FY2026, up from 68% in FY2024. The health insurance segment, which experienced significant growth and accounted for 50% of the incremental GDPI of Rs. 375 billion in FY2024, is projected to remain a key driver due to growing awareness of health insurance and larger insurance policies.

ICRA, a rating agency, estimates that the capital requirement for three public sector insurers – United India Insurance (UII), National Insurance Company (NIC), and Oriental Insurance Company (OIC) – will be substantial, ranging from Rs. 94-102 billion, to meet the solvency ratio of 1.50x as of March 2025.

Parikh also mentioned that excluding New India, the capital requirement for the three public sector insurers would be even higher, ranging from Rs. 320-328 billion, assuming the inclusion of 100% forbearance on the Fair Value Change Account (FVCA) in the available solvency margin.

The solvency ratio for the three public sector insurers (excluding New India) is currently weak at negative 0.58 (excluding FVCA on investments) as of December 2023, compared to the regulatory requirement of 1.50x. This indicates a significant capital requirement. In contrast, private insurers are comfortably capitalized to support their strong growth.

ICRA expects the General Direct Premium Income (GDPI) of the general insurance industry to reach Rs. 3.7 trillion by FY2026, a robust 32% increase from Rs. 2.8 trillion in FY2024.

While private insurers are expected to maintain strong growth, the growth of public sector insurers is likely to be moderate due to their weak capital position. Private insurers are expected to improve their profitability through better underwriting performance, while the combined ratio (a measure of profitability) for public sector insurers is expected to remain weak, thereby impacting their net profitability.

In FY2024, the industry’s GDPI saw a significant year-on-year expansion of 15.5%, reaching Rs. 2.79 trillion, driven by the health sector. Additionally, the motor segment experienced healthy growth due to increased sales of new vehicles (two-wheelers rose by 13.3% YoY and passenger vehicles by 8.4% YoY in FY2024).

Public sector insurers recorded a small net profit in the first nine months of FY2024, in contrast to previous years’ net losses. This improvement was driven by a better combined ratio (supported by the absence of retrospective wage revision and associated arrears in FY2024) and higher investment income.

ICRA expects the combined ratio for public sector insurers to remain weak but improve slightly, reaching 121% in FY2025 (122% estimated in FY2024).

Despite the high frequency and severity of natural catastrophic events in FY2024, the impact on the net loss ratio of the fire segment was manageable due to reinsurance and low retention in this sector, according to ICRA.

Profitability for private insurers remained strong, supported by improved investment income, which is expected to continue. The combined ratio for private insurers is projected to be 106% in FY2025, slightly better than the estimated 107% in FY2024.

Leave a Reply

Your email address will not be published. Required fields are marked *