The domestic systematically-important insurers (D-SIIs) that have been identified by the Indian insurance regulator are expected to reduce their exposure to high-risk assets, said Moody’s Investor Service.
Insurance Regulatory and Development Authority of India (IRDAI) has identified Life Insurance Corporation of India (LIC), General Insurance Corporation of India (GIC Re) and New India Assurance as domestic systemically-important insurers (D-SIIs) for 2020-21.
As per the insurance regulator, D-SIIs refer to insurers of such size, market importance and domestic and global inter-connectedness whose distress or failure would cause significant dislocation in the domestic financial system.
All three entities have exposure to the debt market and equity market and invest heavily into listed stocks. LIC is the largest insurer in the country with a balance sheet of Rs 31.2 lakh crore. GIC Re is the country's sole reinsurer, while New India is the country's largest general insurance company. All three entities are government-owned.
LIC is in the process of being listed on the stock exchanges while GIC Re and New India are already listed.
Mohammed Ali Riyazuddin Londe, Assistant Vice President – Analyst, Financial Institutions Group, Moody’s Investors Service said this is credit-positive for the three insurers. According to him, this will improve their corporate governance and risk management, and in turn, attract stronger and wider investor interest.
“Specifically, we expect the insurers will reduce their exposure to high-risk assets, enhance actuarial-led reserves and pricing, and strengthen their risk-based capital management,” said Londe.
He said the improved pricing discipline by these insurers to strengthen profitability and ultimately capital will support the underwriting performance of India’s wider insurance market.
In the general insurance sector, in particular, aggressive pricing in segments like group health and motor (own-damage) products has been a matter of concern. IRDAI has time and again advised insurers to price products based on the risks and the past claims experience.
Londe explained, given these insurers remain majority government-owned, their credit quality will remain highly correlated to India’s sovereign credit profile.IRDAI has said the three D-SIIs will also be subjected to enhanced regulatory supervision during this period.