Best Affirms New India ‘A’ Rating

November 22, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “A” (Excellent) and the issuer credit rating of “a” of Indian insurer New India Assurance Company Limited with a stable outlook.

“The ratings reflect New India’s leading business profile in the Indian insurance market and an expected improvement in underwriting performance,” said Best. “An offsetting factor is the pressure on risk-adjusted capitalisation arising from a high proportion of equities in the company’s investment portfolio.”

Best also indicated that it “believes that New India is likely to maintain its leading business position as the largest direct insurer in India, with a market share of approximately 23 percent as at March 2005, despite an expected increase in competition from private companies.” Best also sees the company increasing its acceptance of international business, benefiting from the opening of an office in New Zealand in 2005.

Best said it “anticipates an improvement in New India’s combined ratio at year-end March 2006–though still above 110 percent–following a reduction to 116.1 percent at year-end March 2005 (from 118.1 percent in the previous year). The prospective improvement is likely to result mainly from an expected reduction in management expenses as the company continues to benefit from the absence of costs relating to its voluntary retirement scheme.”

The rating agency concluded, however, “New India’s risk-adjusted capitalisation, though at a strong level, is under pressure from its high exposure to the equity markets (with approximately 45 percent of invested assets at market value in domestic equities). Although the company’s investment portfolio is in line with regulatory guidelines, A.M. Best believes that the concentration of New India’s investment portfolio in India exposes the company to increased credit risk.”

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