Premium income to rise by over 10% in FY2027, but solvency stress looming large on PSU insurers: Icra

India’s general insurance sector is expected to see stronger premium growth in the coming years, driven by improved pricing discipline, continued demand for health insurance, and increased vehicle sales. However, public sector insurers (PSUs), namely Life Insurance Corporation of India (LIC), National Insurance Company Limited (NICL), and United India Insurance Company Limited (UIIC), are likely to remain under pressure due to weak capital positions and poor underwriting performance, according to ratings agency Icra.

Icra expects the general insurance industry’s gross direct premium income (GDPI) to rise to ₹3.21–3.24 lakh crore in FY2026 and ₹3.53–3.61 lakh crore in FY2027, up from ₹2.97 lakh crore in FY2025. While private insurers are projected to experience better expansion, growth for PSUs is forecast to remain moderate due to their weak capital base. Underwriting performance for private insurers is likely to improve, supported by stronger pricing discipline, the report says.

Although the combined ratio for PSU insurers is expected to improve slightly, it will remain weak and continue to negatively affect their net profitability. Given the weak performance, Icra estimates the capital requirement for the three PSU general insurers to be a substantial ₹15,200–17,000 lakh crore to achieve a solvency ratio of 1.50x by March 2026, assuming 100% forbearance on the Fair Value Change Account (FVCA).

Neha Parikh, vice president and sector head-financial sector ratings at Icra, said: “GDPI growth is expected to improve in FY2026, supported by pricing discipline in commercial lines, a low base, continued growth in health, and increased vehicle sales compared to FY2025, partly offset by the impact of the 1/n method, which is expected to continue in H1 FY2026. In the absence of the 1/n impact, growth in FY2027 is likely to further improve. Private insurers are expected to expand their share of GDPI to around 70% by FY2027, up from 68% in FY2025.”

The industry’s GDPI growth moderated to 6.5% year-on-year in FY2025, affected by slower economic activity and vehicle sales. The implementation of the 1/n accounting method from October 1, 2024, also impacted growth, especially in retail health, resulting in a lower reported GDPI. Without the 1/n impact, the overall GDPI would have been higher by around ₹7,000 crore, with YoY growth of around 9.0%. Despite the headwinds, the health segment was the largest contributor, accounting for 54% of the incremental GDPI of around ₹18,000 crore in FY2025. However, aggressive pricing led to a slowdown in the fire insurance segment.

The combined ratio for private insurers worsened in FY2025 due to higher loss ratios in the motor segment and increased expenses from long-term policy regulations under 1/n. Still, profitability for private players improved, supported by high realised gains on equity investments. For Icra’s sample set of private insurers, the combined ratio is expected to improve in FY2026, helped by better pricing that offsets the impact of a declining interest rate environment. Despite this, return on equity (RoE) is projected to dip slightly to 12.6% in FY2026 from an estimated 13.7% in FY2025 due to lower realised gains.

For PSU insurers, profitability improved in the first nine months of FY25, largely because of better equity investment returns and a slight improvement in their combined ratio. Icra expects the combined ratio for PSU insurers to remain weak at 120.4% in FY26 versus 121.3% estimated in FY25. Weak underwriting will continue to weigh on profitability, with investment gains playing a major role in determining their bottom line.

As of December 2024, the solvency ratio for the three PSU insurers remains critically low at negative 0.85 (excluding FVCA), far below the regulatory minimum of 1.50x. This indicates a sizeable capital requirement. In contrast, private insurers are well-capitalised to support growth.

Parikh added: “Icra expects a sizeable capital requirement of ₹15,200–17,000 crore for the three PSUs (excluding New India) by March 2026 to maintain a 1.50x solvency ratio, assuming 100% inclusion of FVCA. Excluding FVCA, the capital requirement would rise to ₹33,200–34,000 billion.”