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A.M. Best Revises Outlook of The New India Assurance Company Limited


January 25, 2011 - Hong Kong S.A.R

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of The New India Assurance Company Limited (New India) (India).

The ratings reflect New India’s persistent poor underwriting performance and its subsequent reliance on investment income to generate profits.

New India’s underwriting performance has been dismal in the past five years, with losses continually increasing over the past four years. Underwriting losses increased to INR 17.2 billion in fiscal year 2010 from INR 6.5 billion in fiscal year 2007. While growth in the loss ratio across most business lines contributed to the escalation in underwriting losses, increases in expenses such as provision for wage arrears and pension liabilities added to the burden. Amortization of new software and adjustments to reinsurance accounts also impacted current year underwriting performance.

Due to competitive pricing, New India expects underwriting losses will persist in the coming few years; however, these losses are substantially offset by investment income that averaged more than INR 10 billion in the past five years. Consequently, the company’s rating outlook has been revised. A.M. Best expects New India to remain heavily reliant on investment income and the realization of capital gains on equity investments to offset its underwriting losses.

Offsetting ratings factors include the company’s strong risk-adjusted capitalization, its prominent business profile in the Indian insurance market and the initiatives New India is undertaking to address underperforming lines of business.

New India’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), supports its current rating level. However, its BCAR is highly exposed to the Indian equity market given that 58% of its invested assets are in equities. While strong equity market performance has contributed to New India’s capitalization, extreme market movements also are contributing to volatility in risk-adjusted capitalization.

New India’s business profile remains strong, with the company maintaining a lead position in the domestic market in terms of direct premiums written. Competitive pressures from other government owned and private insurers have continued, with New India growing at slower rates than the market for the 12 months to March 2010. New India continues to lead in generating premiums from fire, marine and health insurance.

The creation of claims hubs has helped the company improve its turnaround times in settling claims. With the setting up of a third party administrator, the undertaking losses from the fast growing health portfolio is expected to improve. The rating outlook will be revised when New India’s underwriting improvement initiatives translate into improvements in its underwriting performance.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Assessing Country Risk”; “Natural Catastrophe Stress Test Methodology”; and “Understanding Universal BCAR.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

CONTACTS : A.M. Best Co. Philip Chung, CFA, +852-2827-3409 Senior Financial Analyst philip.chung@ambest.com or Billy Kwan, CFA, +852-2827-3405 Managing Senior Financial Analyst billy.kwan@ambest.com or Rachelle Morrow, +(1) 908-439-2200, ext. 5378 Senior Manager, Public Relations rachelle.morrow@ambest.com or Jim Peavy, +(1) 908-439-2200, ext. 5644 Assistant Vice President, Public Relations james.peavy@ambest.com

Source: Business Wire India

BusinessWireIndia

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