Rating Rationale
May 29, 2020 | Mumbai
CRISIL assigns its 'CCR AAA/Stable' to The New India Assurance Company Limited; Financial Strength Rating of 'AAA/Stable' withdrawn 
 
Rating Action
Corporate Credit Rating CCR AAA/Stable (Assigned)
Financial Strength Rating AAA/Stable (Withdrawn)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its Corporate Credit Rating (CCR) of 'CCR AAA/Stable' to The New India Assurance Company Limited (New India Assurance) and, has simultaneously withdrawn its 'AAA/Stable' financial strength rating on the company.
 
This is in line with the SEBI notification dated May 30, 2018, as per which this product can no longer be offered by a credit rating agency. CRISIL's Corporate Credit Rating on New India reflects its ability to honour all debt obligations as well as policyholder obligations.
 
The rating is driven by New India's leadership position in the Indian General Insurance Industry, evidenced by a market share of 14.1% ((based on gross direct premium written in India in fiscal 2020) which is similar to its position for the previous fiscal. After a subdued growth of 5.3% for the last fiscal, the company has restored momentum over fiscal 2020 and clocked a growth of 11.7% in its gross premium ' which is at par with the industry.
 
Capitalisation remains healthy, too, with adjusted networth (including un-booked appreciation in equity investments) of Rs 33,515 crore and reported solvency ratio 2.1 times as of December 31, 2019. The portfolio quality remains sound, as 99.8% of investments in debt securities are rated 'A' or above as on December 31, 2019. Moreover, liquidity is comfortable with 51% of investments being parked in government securities (central and state) on market value basis. The rating also factors in New India's strategic importance to, and expectation of strong support from, the Government of India (GoI), given the company's established track record, leadership position and extensive market reach.
 
The aforementioned strengths are partially offset by the company's modest underwriting performance. For nine months through December 2019, the company's underwriting deficit remained substantial at Rs 3045 crore (Rs 3389 crore for the corresponding period of the previous fiscal). Claims ratio ' after rising in fiscal 2019 due to events like global and domestic catastrophic events, increased claims ratio in the crop and personal accident segment in specific geographies and alignment of unexpired risk reserving method for foreign business with that of the domestic business; has restored to 91.5% during the first nine months of fiscal 2020. Nonetheless, it still remains higher than industry average leaving further scope for improvement. Expense ratio for period ended December 31, 2019, remained almost flat at 24.8%.
 
Profitability, nonetheless, remains supported by substantial income from investment, which ' for nine months through fiscal 2020 ' stood at Rs 5,390 (adjusted for diminution in value of Investments {shareholders} & doubtful debts in P/L and, amortization, write off and provision on investments in the Revenue Account)   crore. Profit for the period was Rs 1291 crore as against Rs 850 crore for the corresponding period of the preceding year.
 
In the aftermath of covid-19 break-out, a number of regulatory relaxations were extended to the policyholders. Insurance Regulatory Development Authority of India (IRDAI) had announced an extension in renewal of Health & Motor Third Party (TP) premium payments till May 15, 2020. Commensurately premium hike in motor third-party insurance was also deferred.
 
In light of the above relaxations, CRISIL believes the growth in GDP for the first half of fiscal 2021 could be relatively moderate ' driven by deferment in renewal premiums for the industry. However, once the extension period is over ' inflow of deferred renewal premiums will result in traction thereafter.
 
The growth in new business premium could remain muted for a longer stretch of fiscal 2021 for larger segments like motor insurance driven by the expectation that revival in new sales volumes in the auto sector will happen only at a gradual pace once the lockdown is lifted. For the health segment - which is the second largest after motor, opportunities for growth may emerge in the medium term driven by increased market awareness and demand for indemnity product in this space.
 
While instances of claims have reduced drastically in the month of April and May 2020 due to limited operational activity during the lockdown, CRISIL expects claims ratio for the industry to rise marginally towards the end of September 2020 ' particularly for health and travel insurance segments as more number of claims get reported. Additionally, in line with the government announcement on Pradhan Mantri Garib Kalyan Yojana on March 26, 2020, New India is offering a Rs 50 lac insurance cover to each of the 22.12 lac health care workers tending to the Covid-19 outbreak across the country. In case of accidental death or death due to complications arising from accidentally contracting Covid-19, the insurance amount will be paid to a beneficiary or nominee under the certification of the central or state government authorised authority. The claims incurred under this programme will continue to be monitored.
 
As the situation around the severity and longevity of covid-19 continues to evolve, the impact of it on the company's premium growth and underwriting performance will be a key monitorable.

Analytical Approach

For arriving at the rating, CRISIL has assessed the standalone business, financial and management risk profile of New India Assurance and then, a notch up has been applied to indicate the company's strategic importance to GoI and support expected thereof.

Key Rating Drivers & Detailed Description
Strengths:
* Leadership position in the Indian General Insurance Industry
New India Assurance has maintained its leadership position in the Indian general insurance industry with market share remaining sufficiently above that of other peers; based on gross direct premium (domestic) in fiscal 2020 ' the company held 14.1% of market share. Having underwritten a gross direct premium of Rs 26699 crore for the fiscal, the company registered a growth of 11.7% over last fiscal which is at par with the industry. Further, New India is the only Indian general insurer with sizeable international presence, spread across 28 countries; 10.1% of its annual gross direct premium originates from outside India. CRISIL believes that New India Assurance will continue to benefit from its long, established track record and superior market reach.
 
While CRISIL continues to believe that post completion of proposed merger of the other three public insurers, the combined entity will have a market share of close to 30% as and when formed, double the size of New India, the latter's status as a GoI-owned entity will enable it to sustain its market position in the Indian general insurance sector by increasing its market share, especially in the mid and small-corporate sector, despite intensified competition.
 
* Healthy capitalisation and solvency ratio
Capital position of New India has remained healthy reflected in its large net worth of Rs. 15,354 crore as on December 31, 2019. Networth adjusted for un-booked appreciation in equity investments (reflected in its fair-value change account) is even stronger at Rs 33,515 crore. The strong capital position results in a healthy solvency ratio (available solvency margin/required solvency margin) of 2.1 times which is among the highest in the domestic non-life industry. The solvency ratio, after adjusting for un-booked appreciation in equity investments in available solvency margin, is substantially higher at 4.8 times though ' has declined marginally from its previous levels due to volatility in unrealized gains on equity investments in line with general market scenario.
 
Capitalisation should remain healthy over the medium term. Capital position of New India, in the normal course of business, is expected to remain comfortable ' supported by healthy accretions and substantial balance in fair value change account.
 
* Sound asset quality
Asset quality has remains sound. More than 99.7% of its debt investments were in securities rated 'A' or higher as on December 31, 2019. The company over 12-15 months through December 2019  and accounted for less than 0.2% of total investments based on market value on the same date. The company has made the required provisions against these investments. Investment profile is additionally supported by more than half the book being parked in government securities (central and state). Book value of investments as on December 31, 2019 stood at Rs 59,221 crore.
 
* Strategic importance to, and expectation of continued support from the Government of India
New India Assurance is strategically important to GoI because of its dominant market position (over 30 million policies) and because it is the flagship Indian general insurer in the international markets, with a desk at the prestigious Lloyd's syndicate in London. The importance of the general insurance sector, especially GoI-owned insurers such as New India Assurance, can be seen in the context of GoI's plan to materially enhance insurance penetration over the long term. General insurance companies, especially government-owned entities, are systemically important and will receive support from the government in the event of strain on their credit risk profiles.
 
Weaknesses:
* Modest underwriting performance
New India Assurance's underwriting performance, after having moderated in fiscal 2019 owing to multiple one time occurrences, has restored over 9 months through December 2019. Events like global and domestic catastrophic events, climatic challenges and implementation of area correction factor in two states leading to increased claims in crop insurance segment, increase in claims ratio in the personal accident segment and transitioning to 1/365 accounting method for unexpired risk reserves for foreign business; were a few triggers which led to weakening in underwriting performance for fiscal 2019. Additionally, higher claims in the motor own damage segment further added pressure. For nine months through fiscal 2020, the company's claims ratio decreased to 91.5% from 96.1% for the corresponding 9 months of the previous fiscal. On the expenses side, the ratio remained almost flat at 24.8%. This led to a marginal reduction in underwriting deficit for nine months ended December 2019 to Rs 3045 crore from Rs 3389 crore, corresponding to a similar reduction in combined ratio to 116.4% from 121.0%.
 
The underwriting performance remains modest for now, however the combined ratio should improve gradually over the medium term, supported by its efforts to improve performance of its health insurance portfolio and increase in tariffs in the motor third-party business. Further, revision in pricing and diversification across states, in the crop segment will also benefit the company as the share of crop business in the total premium underwritten grows.
 
From a medium term perspective, the impact of claims incurred due covid-19 situation, on the overall underwriting performance of the company - will remain a key monitorable.
Liquidity Superior

The company's liquidity is comfortable, with a large proportion of liquid investments. On December 31, 2019, government securities (G-secs) accounted for 51% of its investment portfolio based on market value. Additionally, a cash and bank balance of over Rs 8,906 crore and a substantial balance of Rs 18,161 crore in fair value change account, enhance the company's liquidity position.

Outlook: Stable
New India Assurance should continue to benefit from its leadership position in the Indian general insurance industry and maintain its market share, healthy capitalisation, sound asset quality, and comfortable liquidity over the medium term. New India Assurance will also receive support from GoI, in the unlikely event of financial distress.

Rating Sensitivity factors
Downward factors
* Substantial increase in underwriting losses, adversely impacting its profitability or solvency position.
* A sizeable decline in the extent of ownership to below 51% or reduction in strategic importance of New India Assurance to GoI
About the Company

The New India Assurance Company Limited (New India Assurance) is India's largest non-life insurance company with the Government of India (GoI) holding 85.44%. New India was established in 1919 by Sir Dorabji Tata and nationalised in 1973. Post nationalisation, it became one of the four subsidiaries of the General Insurance Company of India (GIC). But when GIC became a re-insurance company as per the IRDA Act 1999, its four primary insurance subsidiaries New India Assurance, United India Insurance, Oriental Insurance and National Insurance got autonomy. 

It is the only Indian general insurance company that has a strong presence in India as well as good reach outside India. In India, New India operates through a network of over 2700 branches. It is also present in 28 other countries through a network of 19 branch offices, 7 agencies, 3 subsidiary companies, 1 Representative Office and 3 associates.

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Gross direct premium Rs. Cr. 26,608 25,159
Networth* Rs. Cr. 14,306 14,126
Profit after tax Rs. Cr. 580 2,201
Combined ratio % 123.6% 111.2%
Solvency margin Times 2.13 2.58
 
Key Financial Indicators
As on / for the period ended December 31   2019 2018
Gross direct premium Rs. Cr. 22,040 19,318
Networth* Rs. Cr.  15,354  14,544
Profit after tax Rs. Cr. 1,291 850
Combined ratio % 116.4% 121.0%
Solvency margin Times 2.10 2.25
*(adjusted foreign currency translation reserves, misc. expenditure and deferred tax assets)

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon
Rate (%)		 Maturity Date Issue Size
(Rs.Cr)		 Rating Assigned  with Outlook
NA NA NA NA NA 0 NA
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
-  CCR 0.00   CCR AAA/Stable                    
Financial Strength Rating  LT  0.00  Withdrawn      28-06-19  AAA/Stable  29-06-18  AA/Stable  28-06-17  AAA/Stable  -- 
All amounts are in Rs.Cr.
Links to related criteria
Rating Criteria for General Insurance Companies
Criteria for Notching up Stand Alone Ratings of Entities Based on Government Support

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