Detailed Rationale

Crisil Ratings has reaffirmed its 'Crisil AA/Stable' rating on the subordinated debts of Magma General Insurance Limited (Erstwhile Magma HDI General Insurance Company Limited) (“Magma”).

 

The rating centrally factors in the strategic importance of Magma to, and expectation of strong support from, its majority shareholder, Sanoti Properties LLP (Sanoti Properties). Sanoti Properties is an investment vehicle held by Mr. Adar Poonawalla (90%) directly and indirectly through Rising Sun Holdings Private Limited (RSHPL) (10%) which is also owned and controlled by him. Mr. Adar Poonawalla is the CEO of Cyrus Poonawalla group of companies. Furthermore, during the previous years, Serum Institute of India Pvt Ltd (SIIPL; ‘Crisil AAA/Stable/Crisil A1+’), the flagship company of the promoter, infused about Rs 6,663 crore in the form of compulsorily convertible cumulative preference shares up to fiscal 2023 in RSHPL. This capital was used to infuse funds into financial services and various businesses of the group including Sanoti.

 

The rating also reflects the adequate capitalisation of Magma and Crisil Ratings' expectation that Magma will maintain a comfortable level of cushion in its solvency ratio above the regulator-specified minimum on a steady-state basis. The extent of the solvency surplus is a critical determinant of the insurer's ability to service subordinated debt. This is because these instruments carry additional risks owing to restrictions on their servicing if the solvency ratio falls below the regulator-specified minimum, and regulatory approval is needed for their servicing in case of loss or inadequate profit. The parent company’s stance to support Magma in maintaining the solvency ratio comfortably above the regulatory requirement has also been factored into the rating. The business risk profile is also supported by the company’s stable investment portfolio.

 

The rating strengths are partially offset by small scale of operations with limited, though increasing, diversity in the portfolio, and modest underwriting performance constraining the earnings.

 

The rating on the hybrid instrument is also centrally based on the approval by the Insurance Regulatory and Development Authority of India (IRDAI) to Magma, as allowed under provision 5 (iii) of the Insurance Regulatory and Development Authority of India (Other Forms of Capital) Regulations, 2022, for the rated instruments of Rs 325 crore. As and when received from the regulator, the approval allows the company to make interest or coupon payments on hybrid debt of Rs. 425 crores to investors for the period for which it has been received, irrespective of reported losses.

Analytical Approach

Crisil Ratings has first assessed the corporate credit rating of Magma, which is an indication of the company's ability to meet obligations to policy holders. For arriving at the corporate credit rating, Crisil Ratings has assessed the standalone business, financial and management risk profiles of Magma, and then factored in the strategic importance of the company to, and expectation of strong support from, its majority shareholder, Sanoti Properties LLP (Sanoti Properties). Sanoti Properties is an investment vehicle held by directly by Mr. Adar Poonawalla (90%) and indirectly through Rising Sun Holdings Private Limited (RSHPL) (10%) which is owned and controlled by him. Mr. Adar Poonawalla is the CEO of Cyrus Poonawalla group of companies. Furthermore, during the previous years, Serum Institute of India Pvt Ltd (SIIPL; ‘Crisil AAA/Stable/Crisil A1+’), the flagship company of the promoter, infused about Rs 6,663 crore in the form of compulsorily convertible cumulative preference shares up to fiscal 2023 in RSHPL. This capital was used to infuse funds into financial services and various businesses of the group, including Sanoti.

 

The subordinated debt instrument has then been assessed for additional risks to determine whether its rating should be the same as, or lower than, the corporate credit rating. The extent of cushion that Magma intends to maintain over and above the regulatory stipulation on a steady state basis has been considered. The parent’s stance to support Magma in maintaining a solvency ratio comfortably above the regulatory requirement has also been factored into the rating.

Key Rating Drivers & Detailed Description

Strengths:

• Expectation of continued strategic importance to, and strong support from, parent: As on December 31, 2024, Sanoti Properties held 72.5% stake in Magma. Sanoti Properties is jointly held by Adar Poonawalla (90%) and Rising Sun Holdings Pvt Ltd (RSHPL; 10%).

 

Other key shareholders in Magma are Celica Developers Pvt Ltd (Celica) and Jaguar Advisory Services Pvt Ltd (Jaguar). Before Sanoti Properties came in as a shareholder (fiscal 2023), Poonawalla Fincorp Ltd (PFL), the non-banking financial company (NBFC) promoted by the Poonawalla family, held a majority stake in Magma. The shareholding of Sanoti Properties had increased from 64.7% as on June 2023 to 74.5% as of November 2023, by virtue of secondary acquisition of 9.9% stake from HDI Global SE. Incrementally, the company had also onboarded Mr. Keki Mistry as an investor with ~2% stake in the company. Further in October 2024, Sanoti Properties along with new family office investors infused Rs 300 crores in the Company. As on December 31, 2024, Sanoti held 72.5% stake in the company.

 

Magma derives funding support and strategic oversight from the parent, as indicated by cumulative capital contribution of ~Rs 1,771 crore since inception - of which, Rs 1,065 crore was primary infusion and balance was deployed towards secondary acquisition of stake from other investors. Given the high strategic importance of Magma and the parent’s intent of maintaining majority shareholding on a steady state basis, the company will continue to receive strong financial and strategic support.

 

• Adequate capitalisation and expectation of high level of cushion in solvency over regulatory stipulation: The capital position remains adequate as reflected in reported net worth of Rs 1,232 crore as on December 31, 2024, supported by cumulative capital infusion of Rs 1,215 crore since fiscal 2023. The equity infusion improved the solvency ratio to 2.05 times as on March 31, 2024, from 1.76 times as on March 31, 2022. The solvency ratio was also supported by tranches of Rs 100 crore and Rs 325 crore raised as subordinated debt in fiscals 2022 and 2024, respectively. The solvency ratio stood at 1.79* times as on December 31, 2024.

 

The buffer in the solvency ratio will support the company’s medium-term business strategy of scaling up the health insurance and corporate insurance portfolios by ramping up its distribution network. The company may raise more equity in the near term, which will enhance its solvency ratio. The solvency position has been above the regulatory stipulation of 1.5 times over the years, and will remain comfortably so over the medium term, with the parent being supportive of this stance. The cushion is crucial, given the likelihood of default in the subordinated debt instrument if the solvency ratio falls below the stipulated minimum.

 

• Sound investment quality: 99.82% of the company's debt investments as on December 31, 2024, were in sovereign securities or corporate debt instruments rated 'AA+' or better. Moreover, a large proportion of liquid investments bolsters its liquidity profile. Government securities (G-secs), both state and central, accounted for 47.7% of the investment book as on December 31, 2024. Magma will maintain its sound investment portfolio, given its prudent investment policy and stringent regulatory guidelines.

 

Weaknesses:

• Small scale of operations with limited, though increasing, diversification: Magma is a small player in the Indian general insurance sector with market share below 1% until fiscal 2024. The size of operations continues to remain modest with gross direct premium (GDP) of Rs 3,044 crore for fiscal 2024 as against Rs 2,534 crore in previous fiscal. For the nine months ended December 31, 2024, the company wrote gross direct premiums of Rs 2,246 crore as against Rs 2,024 crore of gross premiums for the corresponding period of the previous fiscal.

 

While the company has started diversifying gradually, its portfolio mix remains skewed towards motor insurance. Until March 2023, Motor insurance constituted over 73% of the gross direct premiums, followed by Health (including Personal Accident) insurance (~10%). However, the concentration has started to reduce, with Motor insurance forming 64% of the gross direct premiums written in the first nine months of fiscal 2025, and the share of Health (including Personal Accident) and Commercial segments rising to 22% and 14%, respectively. This was catalyzed by the company’s initiatives to reduce concentration as well as favourable macro growth prospects in the health and commercial segments.

 

The scale of operations is expected to remain small over the medium term as growth and diversification will happen gradually and organically, along with the development of bancassurance and agency channels and improvement in in-house underwriting practices.

 

• Modest underwriting performance resulting in weak profitability: The company’s underwriting performance has remained modest while the overall profitability has improved. It reported an underwriting deficit of Rs 557 crore translating to a combined ratio of 116.5% for fiscal 2024, compared with an underwriting loss of Rs 580 crore and combined ratio of 123.8% for the previous fiscal. For fiscal 2024, the company reported a claims ratio of 79.9% (72.6% for fiscal 2023).

 

The loss ratio for nine months ended December 31, 2024, remained almost flat at 79.4% vis-à-vis 80.0% for the corresponding period of the previous fiscal. The overall combined ratio, however, improved to 116.3% from 117.3%, driven by reduction in expense ratio. Underwriting loss for the nine months of fiscal 2025 was Rs 315 crore compared with Rs 376 crore for the corresponding period of fiscal 2024.

 

Earnings remain constrained due to weak underwriting performance and, largely comprise income from investments. The RoE has historically been below 5% and the company incurred losses for fiscals 2022, 2023 and 2024. The net loss of Rs 141 crore for fiscal 2024 factored in the investment income of Rs 404 crore (net loss of Rs 287 crore and investment income of Rs 300 crore for fiscal 2023). The company reported a net profit of Rs 31 crore (considering investment income of Rs 386 crores) for nine months ended December 31, 2024, as compared with Rs 73 crore of loss (post investment income of Rs 293 cores) reported for the corresponding period of the previous fiscal. While the underwriting performance has started to stabilise, it will improve only gradually over the long term, thereby constraining profitability.

Liquidity: Strong

The company’s liquidity position is comfortable, backed by highly liquid investments in the form of G-Secs (48% of the total investment portfolio on book value). Additionally, the company maintains adequate reserve for claims outstanding at all points in time.

Outlook: Stable

Magma will continue to derive strong financial and managerial support from its parent, both on an ongoing basis and during financial distress. The company will maintain comfortable cushion in its solvency ratio, backed by healthy capitalisation and sound investment portfolio. However, profitability will remain constrained by high underwriting losses.

Rating sensitivity factors

Upward factors:

• Significant increase in strategic importance, reflected in brand sharing of, Magma to the parent and related entities, and substantial increase in ownership of the parent and related entities in Magma
• Significant and sustained improvement in market position and profitability, with combined ratio improving to and remaining below 105%

 

Downward factors:

• Decline in steady state solvency ratio below 1.7 times.
• Substantial increase in underwriting losses, adversely impacting earnings
• Decline in support from, or in strategic importance to, the parent and related entities, or material change in shareholding in Magma or in any downward revision in Crisil Ratings’ view on the parent and related entities.   

About the Company

Magma was incorporated in 2009 as a joint venture between PFL (erstwhile Magma Fincorp Ltd), HDI Global SE Germany, Celica Developers Private Limited (Celica) and Jaguar Advisory Services (Jaguar)

 

In fiscal 2023, Sanoti Properties bought the entire stake of PFL (23.2%) and SIIPL (9.9%). This change in shareholding was because of the Reserve Bank of India (RBI) and IRDAI stipulations, which cap the shareholding of NBFCs in an insurance company at 50% and state that the holding company of an insurance company cannot be a subsidiary. Further in fiscal 2024, Sanoti Properties acquired 9.9% stake of HDI. 

 

As on December 31, 2024, Sanoti Properties held 72.5% stake in Magma, with Celica and Jaguar being the other key stakeholders.

 

Magma offers a wide range of retail and commercial general insurance products and operates in three lines of business: Motor insurance (64% of gross direct premiums), Health (including Personal Accident) insurance (22%) and Commercial insurance (14%), which includes Fire insurance (around 9%). The company has a pan-India presence with 96 branches in different cities.

Key Financial Indicators

As on/ for the period ended March 31,	Unit	2024	2023	2022
Gross direct premium	Rs crore	3044	2534	1757
Total investment income	Rs crore	404	300	232
Profit after tax	Rs crore	-141	-287	-12
Networth	Rs crore	900	861	412
Solvency ratio	Times	2.05	2.10	1.76

 

As on / for the period	Unit	Dec-24	Dec-23
Gross direct premium	Rs crore	2246	2023
Total investment income	Rs crore	386	293
Profit after tax	Rs crore	31	-73
Networth	Rs crore	1232	969
Solvency ratio	Times	1.79*	2.11

*In May 2024, IRDAI issued the Master Circular on Actuarial, Accounting and Investment Reg. 2024, wherein the calculation of disallowances of Reinsurance (RI) & Co-insurance (CI) receivables for the purpose of Solvency computation was changed. Initially, this circular was to come into effect from October 1, 2024. Basis the revised calculation, the solvency ratio of the company was reported at 1.79 times as on December 31, 2024 whereas basis the erstwhile method of calculation, the solvency ratio was 2.12 times on the same date. However, post representation made by the insurers to IRDAI, in January 2025 - IRDAI clarified that the earlier method of solvency calculation is to be continued with.

Any other information: Not Applicable