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21 March, 2023 10:58 IST
ICRA estimates NBP to grow 14% in FY2022 to Rs. 3.18 trillion
Source: IRIS | 01 Dec, 2021, 08.10PM
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 The total New Business Premium (NBP) growth for the domestic life insurance industry has continued to remain subdued at 4% in 7M FY2022 or Rs. 1.53 trillion due to the localised lockdown in Q1 FY2022. The growth had tapered down to 7% (Rs. 2.78 trillion) in FY2021, compared to a 21% growth in FY2020. A closer look between the growth rates indicates a sharp decline in the NBP growth for LIC in FY2021. Private sector NBP had slowed down in FY2020, but yet showed a positive growth (8% in FY2021 vs. 9% in FY2020), which accelerated in 7M FY2022 (25%) due to strong growth in the individual business.

According to Sahil Udani, Assistant Vice President & Sector head - Financial Sector Ratings, ICRA, "The NBP is estimated to grow 14% in FY2022 to Rs. 3.18 trillion, as the nominal GDP is projected to grow by 16%. We expect the NBP growth to accelerate in H2, as typically Q4 has always been the strongest quarter for life insurance business growth. The NBP density is expected to increase to Rs. 2,326 from Rs. 2,054 at present. Increasing focus on protection products should help increase the insurance density in India. The outlook on the sector continues to remain stable."

The total sum assured (SA) for both the private sector and LIC had increased in FY2021 and 7M FY2022 from the year ago periods. The total SA for the private sector was Rs. 4.04 trillion in FY2021 up 1% Y-o-Y while for LIC it had increased 7.5% Y-o-Y to Rs. 8.9 trillion. The total SA had increased at a CAGR of 11.2% in the last four years for the private sector. The average individual SA had marginally increased to Rs. 19.9k in FY2021, while in 5M FY2022 it had declined to Rs. 20k (Rs. 24k in 5M FY2021). The increase in individual SA over the years is due to a shift in product mix towards protection products (which has a higher SA).
This ICRA paper analyses the performance of 16 life insurance companies in India, of which one is in the public sector while the rest are in the private sector. These companies collectively represented over 98% of the new business written in the domestic life insurance industry during FY2021.
While the profitability for select private players remains at similar levels in FY2021 with PAT of Rs. 59.6 billion (Rs. 55.4 billion in FY2020), the median ROE for select private players had been declining since FY2018 due to losses at certain smaller players, and a decline in profitability for the bigger players. The select private players reported a cumulative loss of Rs. 5.7 billion in Q1 FY2022 due to high claims during the second wave of the pandemic. ICRA expects the private players’ profitability to remain subdued in FY2022 due to high claims in Q1. LIC’s profitability improved in FY2021 with a PAT of Rs. 29 billion (Rs. 27 billion in FY2020) supported by both higher premiums underwritten and an improvement in investment income in FY2021.
Adds Udani, "Median solvency levels for select private players remained at 2.0-2.1x for the last three years. The larger players have been reporting back-book surplus higher than the new business strain, which had helped meet the capital requirement for the required growth. While the current solvency remains comfortable, ICRA notes that the solvency levels for the industry would be contingent on the underwriting losses incurred on account of Covid-19 pandemic. The reserve buffer, as measured by the total technical reserves / total last annualised claims paid, has gradually increased for private players over the last five years. With higher COVID claims in Q1FY2022,  the reserving ratio is expected to be lower in FY2022."
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