Best Affirms Indian Insurer’s ‘A-‘ Ratings; Outlook Now Stable

February 4, 2008

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

Best said it took the rating action after it had revised India’ s Country Risk Tier. They also “reflect New India’s strong risk-adjusted capitalization and leading business position in the Indian market.”

Best’s Country Risk Tier for India has now been raised to Tier III from Tier IV. The rating revision reflects Best’s “improved opinion of the potential impact of country-specific factors on New India’ s financial strength and ability to meet its financial obligations.

“New India’ s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, remained strong in 2006-2007,” the report continued. “However, the company’s risk-adjusted capitalization is highly exposed to the Indian equity market, given 48 percent of its invested assets are in Indian equities. Adverse movements in the domestic equity market will exert pressure on New India’ s risk-adjusted capitalization.

“New India’ s business profile remains strong, with the company maintaining its leading business position in the domestic market. However, competitive pressures from other government-owned and private insurers are increasing with New India growing at slower rates than the market for the 12 months to March 2007.”

Best cited the Company’s “continued poor underwriting performance, its heavy reliance on investment income and high investment exposure to the Indian equity market,” as offsetting factors.

Best described New India’s underwriting performance in 2006-2007 as “unfavorable.” However, the analysis also pointed out that “underwriting losses decreased to INR 6.5 billion (USD 150 million) in 2006-2007 from INR 11.9 billion (USD 275 million) in 2005-2006. New India’ s combined ratio improved to 112.8 percent in 2006-2007 (126.9 percent in 2005-2006) due to reduced underwriting expenses and higher net premium retention. The company expects the ratio to fall below 100 percent by 2010, led by improvements in claims experience.

“As a result of unfavorable underwriting performance, New India has relied heavily on investment income to offset its underwriting losses.”

Best concluded that it “remains cautious on the performance of New India’ s investment portfolio.”

Source: A.M. Best –

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