A.M. Best Co. announced that it has affirmed its ratings on two Indian insurers – General Insurance Corporation of India (GIC), the country’s huge state-owned general insurer, and New India Assurance Company Limited.
Best affirmed GIC’s “A” (Excellent) financial strength rating with a stable outlook. It indicated that the “rating reflects the company’s excellent risk-adjusted capitalisation, improved underwriting performance and leading business position in India’s reinsurance market. A partially offsetting factor is the company’s long-term reliance on investment income.”
Best said it “believes GIC’s prospective risk-adjusted capitalisation is likely to remain excellent and anticipates that it is likely to be sufficient to absorb forecast premium growth of approximately 20 percent to year-end March 2005. Marginal improvement is anticipated in the company’s combined ratio, following a reduction to 99.1 percent at year-end March 2004, down from 110.6 percent the previous year.
“The improvement came largely from the motor account, where A.M. Best believes further progress is likely as a result of the anticipated removal of motor tariffs over the coming two years, beginning with own damage coverage. In addition, A.M. Best anticipates that GIC will most likely retain its leading position within its domestic market despite a likely decline in its reliance on the compulsory cessions from which it benefits as India’s national reinsurer (currently 20 percent cession from domestic insurers).”
However, Best said: “GIC’s “long-term reliance on investment income to attain bottom line profits, together with its high exposure to the domestic investment markets, has a negative impact on the rating.” The rating agency did single out the company’s increased focus on underwriting profitability, noting that it “is likely to lead to a continuation of the trend towards reduced reliance on investment income that began at year-end March 2004.”
Best affirmed New India’s “A” (Excellent) financial strength rating with a stable outlook. It indicated that the “rating reflects the company’s excellent risk-adjusted capitalisation, prospective improvements in underwriting performance and its leading business profile in the direct insurance market in India.” As with GIC, Best noted that a “partially offsetting factor is the company’s reliance on investment income to counterbalance underwriting losses.”
Best said it “believes New India’s risk-adjusted capitalisation is excellent and anticipates that it will remain sufficient to absorb likely growth in net premiums to year-end March 2005 of just under 10 percent. The absolute level of capital and surplus increased by 71 percent to INR 97.8 billion (USD 2.2 billion) in the year to March 2004. This was largely due to a 153 percent increase in the fair value change account to INR 58.4 billion (USD 1.3 billion), reflecting the change in market value of the company’s investments. A.M. Best believes that New India is likely to maintain its leading business position as the largest direct insurer in India (market share of approximately 25 percent as of March 2004), despite increased competition from overseas companies.”
It also indicated that an improvement in underwriting performance “is likely to lead to less pronounced reliance on investment income.” Best said it anticipates a combined ratio of just over 100 percent at year-end March 2005, a reduction from 118.3 percent the previous year.”
Best noted that New India “experienced a large one-off increase in expenses of INR 5.25 billion (USD 119.4 million) at year-end March 2004 from a voluntary retirement scheme, which is projected to reduce expenses longer term through lower staff costs. The absence of these costs at year-end March 2005 is likely to lead to a reduction in the company’s expense ratio to slightly below 30 percent, down from 42.7 percent at year-end March 2004. The company’s loss ratio is likely to remain stable at close to the March 2004 level of 75.6 percent (down from 81.9 percent at year-end 2003), although the anticipated removal of motor tariff rates over the coming two years is likely to lead to improvement in the company’s loss ratio for year-end 2006-2007.”
Was this article valuable?
Here are more articles you may enjoy.