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India's life insurance industry to do well: S&P

Global rating agency Standard and Poor speculates India's life insurance sector is likely to grow by 20 per cent.

india Updated: Aug 16, 2006 16:04 IST

India's life insurance sector is likely to grow by 20 per cent year-on-year in the medium term. An increase in foreign direct investment to 49 per cent will also have a positive impact, global rating agency Standard & Poor's said.

"Spurred by improving economic conditions, growing affluence, the need for health protection, and low penetration rates, the life insurance sector is expected to continue to grow at about 20 per cent over the medium term," S&P's said in a report.

Driven by the growing middle class and rising disposable incomes, the growth prospects of Indian life insurance industry are good, it said.

"A positive development will be the anticipated lifting of the government's ceiling on permitted foreign domestic investment in insurance companies to 49 per cent from 26 per cent," the rating agency said.

S&P's said one of the growth drivers have been pension fund plans, which have found more acceptance due to extended life spans and improved medical facilities available in the country.

India's largest life insurer LIC is still dominating the market, which was opened to private players in 2000 and about 14 private players have come up in 74:26 joint venture format between domestic and foreign companies.

Despite the hardening interest rates, LIC recorded higher returns on account of the bullish performance of the Indian stock markets in the past few years.

However, S&P's said: "LIC's challenge has been to move away from guaranteeing long-term returns on life products and to improve its solvency ratio."

First Published: Aug 16, 2006 16:04 IST