Detailed Rationale

CRISIL Ratings has reaffirmed its Corporate Credit Rating (CCR) on The New India Assurance Company Limited (New India Assurance) at 'CRISIL AAA/Stable’.

 

The rating is driven by New India's leadership position in the Indian General Insurance Industry, its sound investment portfolio, healthy capitalization and solvency position and its strategic importance to, and support derived from, the parent – Government of India.  These strengths are partially offset by the company’s modest underwriting performance.

 

Based on gross direct premium written in India during nine months ended December 31, 2022, the company had a market share of 13.9%. Gross Direct Premiums (GDP) of the company grew at 1.8% during 9M 2023 as against a robust growth rate of 17.8% registered for the corresponding nine months of fiscal 2022. During 9M 2022, the company had underwritten a significant amount of one-time business in crop and group personal accident (PA) segment which yielded the growth for the period. However, due to high losses stemming from these accounts – the company took a strategic call to not underwrite these accounts in fiscal 2023 in order to sustain underwriting performance.

 

During the first nine months of fiscal 2023, the company’s claims ratio stood at 94.7% as compared to 99.5% for the corresponding period of the previous fiscal. The decline was attributed to the reduction in Covid-19 related claims and, claims incurred in the Group Mediclaim (GMC) segment, during 9M 2022.Resultantly, as the expense ratio remained almost flat at 21.7%, the combined ratio of the company also declined to 116.4% from 120.0% over this period.

 

The financial risk profile of New India remains supported by its healthy capitalization and solvency ratio. On December 31, 2022 – the company’s reported networth stood at Rs 17,652 (adjusted for foreign currency translation reserves, miscellaneous expenditure and deferred tax assets) and its solvency ratio was comfortable at 1.91 times. In addition, the company also had a substantial balance of Rs 18,823 crore in its fair value change account.

 

The company’s underwriting performance remains modest. Underwriting deficit for the nine months through December 31, 2022 was Rs 3,703 crore and its impact on the overall profitability, was offset by a healthy investment income of Rs 8,200 crore. Net profit for the period was Rs 900 crore.

 

The rating also factors in the strategic importance of New India to, and expectation of strong support from, the parent – Government of India.

Analytical Approach

For arriving at the corporate credit rating, CRISIL Ratings 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 nine months ended December 31, 2022 - the company held 13.9% of market share. Having underwritten a gross direct premium of Rs 27,480 crore for the first nine months of fiscal 2023, the company registered a growth of 1.8% on a year-on-year basis, as against an industrial growth of 16.23%. During 9M 2022, the company underwrote a significant amount of crop and group PA business which yielded a robust one time growth of 17.8% in gross premiums in that period.

 

Further, New India is the only Indian general insurer with a sizeable international presence, spread across 28 countries; close to 10% of its annual gross direct premium originates from outside India. New India Assurance will continue to benefit from its long, established track record and superior market reach. Its status as a GoI-owned entity will enable it to sustain its market position in the Indian general insurance sector. Post Covid-19 outbreak, the awareness about health insurance products among the customers has increased and so has their demand. Based on gross direct premiums written in 9M 2023, 45% of the company’s premium portfolio comprised health insurance premiums followed by motor premium accounting for 27% and fire insurance premiums forming 15% of the portfolio.

 

The company is also in the process of revising the prices of its health insurance products upward, as seen for many peers in fiscal 2023, which would contribute to health remaining the largest portfolio in the company’s book over the medium term. Motor segment is also expected to grow driven by motor sales.

 

Healthy capitalisation and comfortable solvency ratio

Capital position of New India has remained healthy reflected in its large net worth of Rs. 20,165 crore as on December 31, 2022. Networth adjusted for un-booked appreciation in equity investments (reflected in its fair-value change account) is even stronger at Rs 38,988 crore. The strong capital position results in a healthy solvency ratio (available solvency margin/required solvency margin) of 1.91 times and has consistently remained around 2 times.

 

The solvency ratio, after adjusting for un-booked appreciation in equity investments in available solvency margin, is substantially higher at 4.04 times though - has declined marginally from its previous levels due to the company monetizing a few of its investments in the past 2-3 quarters. 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 investment portfolio quality

Quality of investments has remains sound. More than 99.4% of its debt investments were in securities rated 'AA' or higher as on December 31, 2022. On the same date, almost 63.9% of the debt investments had a residual maturity of more than 3 years. Gross non-performing assets stood at 1.15% on December 31, 2022. Investment profile is additionally supported by more than half the book being parked in government securities (central and state). Market value of investments as on December 31, 2022 stood at Rs 74,526 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.

 

Weakness:

Modest underwriting performance

New India Assurance's underwriting performance remains modest. For nine months through fiscal 2023, the company's claims ratio of 94.7% was lower than 99.5% incurred for the corresponding 9 months of the previous fiscal. This improvement was a result of reduced Covid-19 claims which were the primary driver for higher claims in fiscal 2022. On the expenses side, the ratio increased marginally to 21.7% during 9M 2023 from 20.5% for 9M 2022.

 

Overall combined ratio declined to 116.4% from 120% over the same period. This corresponded to a reduction in underwriting deficit for nine months ended December 2022 to Rs 3,703 crore from Rs 4,389 crore for the previous corresponding period. The underwriting performance remains modest for now, however the combined ratio should improve gradually over the medium to long term, supported by the company’s efforts to improve performance in some of their core verticals like motor and health and diversify the portfolio into retail segments.

Liquidity: Superior

The company's liquidity is comfortable, with a large proportion of liquid investments. On December 31, 2022, government securities (G-secs) accounted for 63% of its investment portfolio based on market value. Additionally, a cash and bank balance of over Rs 11,570 crore and a substantial balance of Rs 18,823 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 Governent of India (GoI) holding 85.54%. 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 31 regional offices, 477 divisional offices, 594 branch offices (including 27 direct agent branches), 1257 micro offices, 1 auto hub, 7 large corporate and brokers' offices and 1 office at International Financial Services Centre (IFSC) in Gujarat International Finance Tec-City. 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.

Any other information: Not applicable