Insurance sector may see further listing, M&A activity in coming months: Moody's report

Having raised Rs 1,930 crore in FY23, the insurance sector may witness further capital transactions, including stock market listings and M&A, to improve the sector's capital adequacy and financial flexibility in the months ahead, a report said.

Indian insurers' favourable growth prospects have encouraged the sector to raise capital, outweighing the adverse impact of their weak underwriting profitability, Moody's said in a report. In FY23, the sector's paid capital rose to Rs 75,300 crore from Rs 73,400 crore a year earlier, an increase of 2.6 per cent.

"We expect more such transactions, as well as more merger and acquisition (M&A) deals and initial public offerings (IPOs), to improve the Indian insurance sector's capital adequacy and financial flexibility in the months ahead," it said.

The report said foreign insurers would continue investing in the Indian insurance market and many foreign companies already present in the country through joint ventures could seek to increase their ownership stakes in their Indian affiliates.

"We believe the presence of foreign stakeholders brings particular benefits in the areas of capital adequacy, financial flexibility and governance standards. The raising of limits on foreign ownership of insurance companies has been credit positive for the market," it said.

India's privately-owned insurers, where foreign shareholdings are concentrated, have cut their exposure to high-risk assets and have been early adopters of actuarial-led reserve management and risk-based capital management, it said, adding, this will help private insurers reap benefits of India's economic growth.

The report said the overall insurance sector's profitability after tax was positive in FY23, helped by better investment returns.

However, the general insurance sector's result remained negative as rising claims pushed it to an underwriting loss, it said, adding, a sustained increase in prices as a result of the government's reform programme would significantly improve the sector's underwriting performance and profitability.

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