S&P gives better outlook to Chinese insurers than India

S&P gives better outlook to Chinese insurers than India


New Delhi: Global rating agency Standard and Poors has given a better outlook to Chinese insurance industry than India as it feels the Communist nation is ahead in terms of regulatory reforms and opening of the sector.

“Two major Chinese state-owned insurers have listed offshore and onshore, while India’s national insurers are still wholly government owned," S&P said in its Asia-Pacific Insurance Outlook.

These factors support the outlook on China’s insurance sector as the system would benefit from being more open and shareholder focused, it said, while giving a ‘stable’ outlook to Indian industry against ‘positive’ to Chinese firms.

On a more specific evaluation, the rating agency said the freedom to general insurers to fix tariffs from 1 January in India may not improve underwriting performance.

S&P also said less capitalization of state-owned Life Insurance Corporation, the country’s biggest insurer, comes in the way of potential growth in life insurance sector. Besides LIC, the other four non-life major insurers in India are also fully owned by the government.

The rating agency also said though the stable outlook on India’s life insurance sector reflected strong potential growth, it was offset by weak capitalization of LIC.

While there is a requirement of a minimum paid-up capital of Rs100 crore for private players, LIC is capitalised with a paid up capital of only Rs5 crore.

“Most of the private life insurers are much better capitalised than LIC," the report said.

S&P said most of the life insurers in India made losses during 2005-06 due to their start-up status. Although private life insurers in India have been thriving for the past five years, overall industry risks remain high.

However, in general insurance, state-owned companies have satisfactory capitalization, the report said.

The non-life insurance sector has experienced poor underwriting performance, with losses over a number of years.

Underwriting is a promise by insurers to take risks of losses at an agreed premium.

India’s general insurers’ profitability was supported by investment income and gains, which is not a healthy trend for the sector’s long-term development and has hindered development of companies’ underwriting risk control.

Underwriting performance of India’s non-life insurance industry may not improve quickly under a detariffed regime implemented in early 2007. Poor underwriting and relatively low levels of sophistication have produced a high industry-risk level for India, the report said.