NU Online News Service, Jan. 16, 1:56 p.m.EST

A.M. Best says it expects further growth for India's insurancemarket, but despite increasing premiums, profitability continues tobe a challenge for insurers.

In a Special Report on India's insurance market, Best says,“Since the market was liberalized in 2000, total insurance premiumshave increased strongly, driven primarily by the life market.” Butthe ratings agency adds, “However, while the insurance sectoroffers prospects for growth, it is also characterized by challengesand frustrations.”

The report notes that a slowdown in the growth of gross domesticproduct, in addition to inflationary pressures, “could dampen theinsurance market's rate of growth.”

Best says, though, that India's long-term prospects remainpositive, with GDP forecasted to have grown 7.8 percent in 2011,according to the International Monetary Fund. Regarding inflation,Best says the Reserve Bank of India has been steadily tighteningmonetary policy since March 2010 and has been lifting interestrates to improve the situation.

Best also says that while India's insurance market is expanding,“it has been characterized by intense competition and lossesemanating from the motor pool.”

The Indian Motor Third Party Insurance Pool (IMTPIP) was createdin April 2007, Best explains, and “has been among the mostsignificant contributors to underwriting losses, as claimsinflation has been rising.”

Best says losses are distributed to all insurers according totheir overall market share of all lines of business. “The IMTPIP'sloss ratio reached 194.2 for the year 2009-2010, while itmaintained reserves at a loss ratio of 126.”

Private insurers have called for the restructuring orabolishment of the pool for years, Best says, and plans have beenannounced to dismantle the pool in March 2012.

Despite the challenges, Best says there are opportunities forinsurers in India, and top-line growth remains strong, withnon-life gross written premiums increasing 23.8 percent from April2011 to October 2011. Still, insurers will need to find a way toturn around the trend of underwriting losses. Best says thenon-life combined ratio has increased from 106.9 in 2007 to 122.3in 2011.