Oldwick, New Jersey, United States
A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and the issuer credit rating (ICR) of "bbb+" of The Oriental Insurance Company Limited (Oriental) (India). The outlook on both ratings is stable.
The ratings reflect Oriental's strengthened capitalization level, improving underwriting performance and strong market presence in the insurance market in India.
Oriental's risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), improved during fiscal years 2005 and 2006. This was mainly due to a higher investment income and an increase in unrealized capital gains arising from equity investment. The company's (BCAR) further demonstrates the cushion that exists.
Oriental's underwriting results improved in fiscal year 2006. Oriental's combined ratio improved to 115% in fiscal year 2006 from 126% in fiscal year 2005. A.M. Best expects that Oriental's combined ratio will further improve in fiscal year 2007.
Oriental has a strong presence in the insurance market in India. In terms of gross premium written (GPW), the company has maintained its position as the second largest general insurer with market share of 16% in fiscal year 2006.
Offsetting factors include high investment risk, poor underwriting results and intense market competition.
As of fiscal year 2006, Oriental invested over 50% of its total assets in the Indian equity market. This high equity risk weighs heavily on the company's risk-based capitalization. Any adverse movements in the Indian equity market may exert pressure on its risk-adjusted capitalization level.
Oriental's underwriting performance with a combined ratio of 115% is still considered high. The company's overall profitability continued to rely on the investment income, however, which highly depends on the performance of the Indian equity market.
The insurance market in India is very competitive since the liberalization in 1999. There have been eight new private general insurance companies entering the market since then. The market share, in terms of direct premiums written, of private companies was approximately 35% as of fiscal year 2006. It is a challenge for Oriental to maintain its market share in this competitive market environment.
Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors. For more information, visit www.ambest.com.
Source: Business Wire (Business Wire India)