A.M. Best Affirms Ratings of Two Indian Insurers

February 19, 2004

A.M. Best Co. affirmed the “A” (Excellent) financial strength rating of General Insurance Corporation of India (GIC) (Mumbai, India) and the “A” (Excellent) rating of New India Assurance Company Limited (New India) (Mumbai, India). The outlook for both companies is stable.

A.M. Best said GIC’s rating reflects the company’s excellent risk-adjusted capitalization, its leading business profile in the Indian reinsurance market and excellent operating performance as a result of consistently high returns from its investment portfolio. Offsetting factors include the company’s reliance on its domestic investment and insurance markets and continuing weakness in the company’s underwriting performance, particularly in the Indian motor market.

GIC’s high exposure to the domestic equity markets and its reliance on investment income were cited as offsetting factors. GIC continues to suffer from weak underwriting performance, particularly from its motor account (25 percent of gross premium written in the year to March 2003). A.M. Best expects the company’s combined ratio for this class to remain high at over 110 percent at year-end March 2004 (116 percent at year-end 2003), despite recent increases in tariff rates.

A.M. Best anticipates that failure to improve underwriting performance significantly may put downward pressure on GIC’s rating.

New India’s rating reflects the company’s excellent risk-adjusted capitalization, consistent returns from its investment portfolio and favorable growth opportunities in the Indian market. Offsetting factors include New India’s reliance on the Indian investment and insurance markets, continuing weakness in underwriting performance and increased competition arising from the admittance of international companies to the Indian market.

A.M. Best believes that New India’s underwriting performance at year-end 2004 will be weak due to the inflexible nature of the tariff system in India. Seventy percent of business is priced on a tariff basis (mainly motor and fire business), and this is unlikely to change in the near future. A.M. Best expects the combined ratio at year-end 2004 to remain at the current high level of approximately 110 percent.

New India’s market share is expected to decrease further following a reduction at year-end March 2003 to 24 percent from 32 percent the previous year. Competition has increased in India with the entrance of international companies following the liberalization of the insurance industry three years ago. However, A.M. Best expects competition to be offset by the overall growth of the insurance industry in India, anticipated to be in line with the 26 percent growth recorded in 2003. In addition, A.M. Best believes that net written premium from New India’s foreign operations will continue to grow rapidly—a 28 percent increase to INR 8,574 million (USD 189.42 million) at year-end March 2003.

A.M. Best said New India needs to improve its underwriting performance significantly and reduce its reliance on investment income, to avoid future negative implications for the rating.

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