AM Best Downgrades Credit Ratings of New India Assurance Company Limited
SINGAPORE--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to u201cbbb+u201d from u201ca-u201d of New India Assurance Company Limited (New India) (India). The outlook of these Credit Ratings (ratings) has been revised to stable from negative.
These ratings reflect New Indiau2019s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, favourable business profile and marginal enterprise risk management (ERM).
The rating downgrades follow a revision in AM Bestu2019s assessment of New Indiau2019s ERM from appropriate to marginal. The companyu2019s deficiencies in financial reporting continue to result in audit qualifications. Whilst the companyu2019s audited accounts have been qualified for several years as a result of internal control weakness in the reconciliation of certain accounts, the company received two further matters of emphasis from auditors in fiscal-year 2020 related to claims and expense allocation. In addition, New Indiau2019s persistent underwriting losses and volatility raise concern over the companyu2019s ability to select and price the risks appropriately. Whilst the unique features of Indiau2019s market and the companyu2019s role as government-owned insurer may impact the strategy, AM Best considers New Indiau2019s ERM to be below the global standards for an organization of its scale.
AM Best continues to view the companyu2019s balance sheet strength as very strong. This is supported by its risk-adjusted capitalisation, which remained at the strongest level as of March 31, 2020, as measured by Bestu2019s Capital Adequacy Ratio (BCAR). However, New Indiau2019s capital adequacy has deteriorated compared with the 2019 position, largely as a result of an approximately 30% decline in its capital and surplus. This was driven by a sharp fall in the market value of New Indiau2019s equity investments. In addition, in the near to medium term, the capital and surplus might be negatively impacted by an additional pension liability of INR 16.4 billion (USD 218 million) resulting from a recent regulatory amendment. Consequently, the companyu2019s risk-adjusted capitalisation is increasingly sensitive to further investment market volatility and/or potential deterioration in the credit quality of the companyu2019s bond investment portfolio, amid the COVID-19 pandemic.
AM Best assesses New Indiau2019s operating performance as adequate. New India has reported a five-year average return-on-equity (ROE) ratio of 3.5% (fiscal years 2016 to 2020), as calculated by AM Best. Underwriting performance, while improved in fiscal-year 2020 compared with the prior year, has remained poor owing to persistent losses from its motor and health business, coupled with severe deteriorations in loss experience for engineering, crop and other miscellaneous classes of business in fiscal-year 2020. Furthermore, AM Best expects that investment income, which the company has relied on mainly to offset underwriting losses and produce operating profits for many years, could be weakened over the near to medium term as the central bank lowers interest rates and companies reduce dividend payouts to conserve resources during the current economic downturn.
The companyu2019s business profile is assessed as favourable. New India remains the largest player in Indiau2019s non-life insurance market, ranked by gross premium written. In addition, New India maintains a dominant position in almost every line of business in its domestic market. Furthermore, the company is well-diversified in terms of geographic spread, lines of business and distribution channels. In comparison with local peers, it stands out as the only direct insurer with a considerable overseas footprint.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on AM Bestu2019s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Bestu2019s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Bestu2019s Credit Ratings. For information on the proper media use of Bestu2019s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Bestu2019s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
