‘SHORT-TERM PROFITABILITY OF GENERAL INSURANCE FIRMS COULD BE HIT’

Mumbai: While the short-term profitability of general insurance firms in India could be affected by the current situation in the industry, the outlook for these firms is stable on account of steady fundamental credit conditions for the next 12-18 months, says a joint report by Moody’s Investor Services and ICRA.

Pressure on the premium rates due to intense competition, higher reinsurance costs and falling premium income could adversely affect short-term profitability of the general insurance firms, says the report.

The greater reliance of the insurers on their investment portfolios to generate income could expose them to the volatility of the financial markets. The report also stresses on the need for raising more capital for unconstrained growth by private insurers, as reliance on reinsurance for capital relief is not always viable. It also stresses on the need for ensuring greater transparency and the need for more trained insurance professionals and technicians.

However, highlighting the positives, the report says that rising income levels, low penetration levels for most consumer products, availability of financing and changes in lifestyle and higher risk awareness would sustain consumer demand for the products provided by the general insurance providers.

The intense competition brought about by deregulation could encourage the insurance providers to innovate in the areas of underwriting, marketing, policyholder servicing and record keeping.

Answering queries about the impact of relaxation of foreign investment limits in the insurance sector, Mr Subrata Ray, Head-Corporate Sector Ratings, ICRA, said that increasing the limit to 49 per cent would lead to increased capital inflows into the sector, which could be beneficial in the long run.

But it would also mean increased competition, which might adversely affect the position of the fringe players. There are 14 players in the general insurance market, of which eight players enjoy a market share of 90 per cent, he added.

Source: The Hindu Business Line