India: Non-life giant's overall operating results expected to remain profitable – Asia Insurance Review


The New India Assurance, the biggest non-life insurer in India, has reported positive operating results over the past five years, with an average return-on-equity ratio of 3.3% (fiscal years 2017-2021), notes AM Best.
Whilst remaining profitable, New India’s net profit declined significantly in the financial year ended 31 March 2022 (FY2022) compared with the prior year, driven by an increase in underwriting losses.
Underwriting performance in FY2022 was weaker than the prior year, mainly caused by the company’s poor loss experience in its health insurance segment due to COVID-19, as well as a higher claims ratio in its motor business although mitigated in part by lower management expenses and net acquisition costs.
Robust investment income, including interest and dividend income, as well as realised gains from the sale of equity investments, remained a crucial component to overall earnings.
AM Best expects challenging market conditions and the impact arising from the ongoing COVID-19 pandemic to constrain the company’s underwriting and investment results over the near to medium term, although overall operating results are expected to remain profitable.
Ratings affirmed
AM Best has affirmed New India's Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb+” (Good). The outlook of these credit ratings is 'Stable'.
The ratings reflect New India’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, favourable business profile and marginal enterprise risk management (ERM). The ratings also factor in a neutral impact from the company’s ultimate majority ownership by the government of India.
New India’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, which remained at the strongest level in FY2022, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best views the company’s investment portfolio to have moderate risk. Although a large portion of investments are held in domestic government bonds and corporate bonds that are well-rated on the local scale, the balance sheet remains subject to volatility arising from the company’s allocation to domestic equity investments.
The majority of New India’s reinsurance assets are of good credit quality, notwithstanding that the company maintains a reinsurance counterparty concentration to the domestic reinsurer, General Insurance Corporation of India (GIC Re).
Business profile
AM Best views New India’s business profile as favourable given its market-leading position as the largest non-life insurer in India by gross premium written overall, as well as in major business lines, including health, marine, and fire.
The company’s underwriting portfolio is moderately diversified by lines of business and distribution channels, although with an increasing concentration in health insurance.
International geographical diversification is supported by the company’s overseas operations, through its foreign branches, agency offices and subsidiaries.
New India has significant underwriting capacity to insure large risks both in India and overseas given the company’s sizeable capital base and use of reinsurance. The domestic market continues to present significant growth opportunities for the company, although AM Best considers high market competition, particularly in the health and motor business, to be an offsetting factor.
New India’s ERM is assessed as marginal. The ERM framework continues to evolve, and the profile of some key risks exceeds the company’s risk management capabilities. Whilst the company is progressing on strengthening internal controls and has partially addressed some audit matters, inadequate resolution of audit matters has impacted financial reporting quality over a number of years. Elevated concerns persist over the company’s pricing discipline and underwriting risk management given the level of ongoing underwriting losses.
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