Flooding in the southern Indian state of Kerala is not expected to have a significant impact on the balance sheet strength of rated Indian non-life insurers, says A.M. Best.

However, the losses may add to the unfavourable underwriting performance that the international credit agency has flagged as a negative rating factor for some of these insurers, says a new Best’s Briefing, titled, “Kerala Floods: Limited Impact on Rated Insurers’ Capital, May Add to Performance Issues”.

A.M. Best notes that Kerala represents a significantly smaller portion of the Indian non-life market and the international credit agency rated insurers’ overall gross premiums. Additionally, insurance penetration in India is low and insurance penetration in Kerala is estimated to be below the national average.

The cumulative rainfall this year during the 2018 summer monsoon period in Kerala was significantly higher than normal, and together with the release of waters from dams, created severe flooding in the region.

A.M. Best expects fire and motor to be the most impacted lines of business. Motor own damage is one of the leading sources of business, accounting for 30% of gross premiums in the state. Four large insurers, which wrote an estimated 70% of Kerala’s gross non-life premiums in 2017, are likely to absorb the majority of claims. The affected insurers rated by A.M. Best are expected to have adequate reinsurance protection, with deductibles that are small percentages of their premium base and capital sizes.

A.M. Best will continue to closely monitor developments at its rated insurers as more information becomes available on the ultimate gross and net impact of the floods on their profitability.