Improving underwriting discipline among psu's to benefit non-life sector: Moody's

MUMBAI: Moody’s Ratings said in a report that India’s insurance sector is likely to benefit from Govt moves to recapitalise and merge state-owned non-life insurers, as the measures aim to improve underwriting discipline, ease pricing pressures, and support long-term profitability amid strong economic growth and regulatory change.
The report said large state-owned insurers have historically prioritised gaining market share over underwriting profitability, leading them to set prices at artificially low levels that made it difficult for private sector peers to compete. This approach has weighed on overall industry profitability and contributed to sustained pricing pressure across segments.


Government initiatives to recapitalise and potentially merge state-owned insurers are seen as credit positive for the sector. “The government aims to improve the performance of the dominant state-owned insurance sector by recapitalizing and potentially merging state-owned companies that improve their underwriting profitability,” the report said. “A sustained improvement in the state-owned sector's underwriting discipline should help relieve pricing pressures across the market as a whole,” it added.


Moody’s said India’s economy is expected to grow 7.3% in FY 2025, supporting rising average incomes and stronger demand for insurance products. The report said a GST exemption for individual life and health insurance policies is expected to improve product affordability and boost insurance penetration, although the positive impact on profitability will be partly offset by the loss of income tax credit. India’s overall insurance penetration stood at 3.7% in FY 2024, well below levels in developed markets such as the UK at 11.8% and the US at 12.1%, indicating significant headroom for growth.


Industry data cited in the report showed total premiums rose 17% in the first eight months of 2025, sharply outperforming the 7% growth recorded in FY 2024. During this period, new business premiums in life insurance increased 20%, while health insurance premiums rose 14%, reflecting broad-based demand growth.


The report said a December 2025 amendment to the Insurance Act that raised the foreign investment limit to 100% from 74% is expected to provide additional financial flexibility, support product innovation, and improve governance standards. Increased foreign participation could also help insurers navigate capital and regulatory pressures more effectively over the medium term.