India's general insurance industry will see moderate yet steady growth over the next two years, with private sector insurers surging ahead of their public sector counterparts, credit ratings agency ICRA has said.
Private insurers are expected to be the primary drivers of growth, with gross direct premium income (GDPI) projected to rise by 9.7 percent in FY26 and 12.5 percent in the next fiscal, ICRA said in a report released on June 2.
Public sector insurers are forecast to see a slower GDPI growth, at 6.6 percent in FY26 and 7.3 percent in FY27.
By FY27, the industry GDPI is expected to reach Rs 3.53–3.61 lakh crore, up from Rs 2.97 lakh crore in FY25.
Private insurers’ share of GDPI is likely to expand from 68 percent in FY25 to 70 percent in FY27, further consolidating their market dominance.
The growth trajectory is supported by stronger underwriting practices and better capital adequacy in the private sector, the ICRA report said.
Private players are demonstrating improved pricing discipline, particularly in commercial lines and motor insurance, and are better positioned to absorb the effects of regulatory changes such as the 1/n accounting method introduced in October 2024.
This rule, which mandates spreading premium recognition evenly over the policy term for long-term policies, significantly affected retail health premiums and contributed to an industry-wide slowdown in GDPI growth in FY25.
GDPI growth in FY25 stood at 6.5 percent but ICRA estimates that without the 1/n impact, the growth would have been closer to 9 percent, with an additional Rs 70 billion in reported premiums.
On the other hand, public sector insurers continue to grapple with structural challenges.
Their weak capital position limits underwriting capacity and although a slight improvement in combined ratio is projected — from 121.3 percent in FY25 to 120.4 percent in FY26 — it remains well above the breakeven threshold of 100 percent.
This continued underwriting weakness implies that their net profitability will remain heavily reliant on realised gains from equity investments rather than operational improvements.
Private insurers, while also affected by a higher loss ratio in the motor segment and increased expenses due to the 1/n regulation, are expected to report more favourable operating metrics.
Their combined ratio is forecast to improve to 110 percent in FY26 and 108 percent in FY27, compared to an estimated 111 percent in FY25.
Though return on equity (RoE) for private insurers is projected to decline from 13.7 percent (estimated) in FY25 to 12.6 percent in FY26 due to weaker realised gains, it is expected to rebound to 12.8 percent in FY27, reflecting stable profitability and cost control, the report said.
The solvency position further illustrates the disparity.
Private players are generally well-capitalised and financially equipped to support growth, while the solvency ratio of three PSU insurers, excluding New India Assurance, remains deeply negative at -0.85 as of December 2024 (excluding fair value changes).
To meet the regulatory solvency ratio requirement of 1.5x by March 2026, these PSU insurers will require between Rs 15,200 crore and Rs 17,000 crore, assuming 100 percent inclusion of the fair value change account (FVCA), the report said.
If the FVCA is excluded, the required capital infusion increases significantly to between Rs 33,200 crore and Rs 34,000 crore.
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