DEAR VIEWERS,
The New India Assurance Company Limited
Financial Strength Rating - AAA/Stable (Reaffirmed)
CRISIL’s financial strength rating on The New India Assurance Company Ltd (New India Assurance) reflects the support that New India Assurance is likely to get from its sole owner, Government of India (GoI). The ratings also reflect New India Assurance’s leading market position in the general insurance industry in India, strong capitalisation, sound asset quality, and healthy liquidity. These rating strengths are partially offset by the profitability pressures the company faces in its underwriting business.
CRISIL believes that public sector general insurance companies, including New India Assurance, are systemically important and will therefore receive support from GoI in the unlikely event of a strain in their claims-paying ability. Furthermore, GoI entirely owns these companies. This, CRISIL believes, puts a moral obligation on GoI to support these companies at all times. Also, public sector insurance companies have a dominant aggregate market position in the insurance sector. These companies together had around 60 per cent share in the gross premia originated in India in 2010-11 (refers to financial year, April 1 to March 31). While competition has intensified in the sector with the entry of new players and de-tariffication in key products, New India Assurance continued to retain its leading market position (18.8 per cent market share based on gross premium written in 2010-11) in the general insurance industry. The company’s long and established track record, superior market reach, both in India and abroad (as reflected in its presence across 27 countries), and its status as a GoI-owned entity will continue to support its leading competitive position.
New India Assurance’s strong capital position is reflected in its large net worth of Rs.71 billion as on March 31, 2011. Also, the solvency ratio reported was 3.2 times as on December 31, 2011. The capital position increases further to Rs.238.4 billion if the mark-to-market gains from its investment portfolio (reflected in the fair value change account) are factored in. Moreover, New India Assurance has sound asset quality. Investments in government securities (g-secs) and equities comprised 16 per cent and 67 per cent, respectively, of the company’s investment portfolio, based on market value of investments as on March 31, 2011. The company’s equity portfolio (market value Rs.192 billion as on March 31, 2011) is more than adequate to cover its net non-performing assets. In addition, New India Assurance’s liquidity remains comfortable, with a high proportion of liquid investments.
However, like other public sector insurance companies, New India Assurance has consistently reported underwriting losses; in 2010-11, the company registered underwriting loss of Rs.26.6 billion (Rs.17.2 billion in 2009-10). In addition, the company’s combined ratio1 deteriorated to 137 per cent during 2010-11 from 128 per cent during 2009-10. The reason for the decline in underwriting performance was increase in reserving requirements in the motor third-party pool segment for the past four years and poor underwriting performance across key segments post de-tariffication. CRISIL expects New India Assurance’s underwriting performance to improve to some extent in 2011-12 on account of the recent rate hike in motor third-party premiums by Insurance Regulatory and Development Authority. However, the general insurance industry is expected to face pressure on underwriting performance unless risk-based pricing is implemented across key segments.
Outlook: Stable
CRISIL believes that New India Assurance will maintain its leading market position in the Indian general insurance industry over the medium term and continue to receive support from GoI in the event of financial distress. CRISIL also believes that New India Assurance will maintain its superior capitalisation and strong liquidity. However, like all public sector insurance companies, New India Assurance is yet to demonstrate its ability to generate underwriting profits. The outlook may be revised to ‘Negative’ if New India Assurance continues to incur substantial underwriting losses, or if its market position weakens.
About the Company
New India Assurance is India’s largest non-life insurance company. It is the only Indian general insurance company that has a strong market position in India and a significant reach outside India. In India, New India Assurance operates through 26 regional offices, 395 divisional offices, 591 branch offices, 27 direct agent branches and 23 extension counters. It is also present in 27 other countries through a network of 19 branch offices, 7 agencies, 4 associate companies and 3 subsidiary companies including 1 fully owned subsidiary. The company had a strong employee base of 19,417 as on March 31, 2011.
New India Assurance was established in 1919 by Sir Dorab Tata and nationalised in 1973. On nationalisation, it became one of the four subsidiaries of the General Insurance Company of India. The four general insurance companies were then divided across the four geographical regions, and New India Assurance was allotted the western zone.
For 2010-11, New India Assurance reported 16 per cent year-on-year growth in its gross premiums originated in India to Rs.82.3 billion from Rs.70.9 billion for 2009-10. The company reported underwriting losses of Rs.26.6 billion for 2010-11, compared to Rs.17.2 billion in 2009-10. New India Assurance reported a net loss of Rs.4.2 billion for 2010-11, compared to a net profit of Rs.4.0 billion for 2009-10.
1 Combined ratio = Net incurred claims ratio + operating expense ratio. A high combined ratio indicates the company’s high proportion of payouts vis-à-vis premium received. Net incurred claims ratio is calculated as a percentage of net premiums earned.
.....EDITOR
