| The New India Assurance Company Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its Corporate Credit Rating (CCR) for The New India Assurance Company Limited (New India Assurance) at 'CCR AAA/Stable’.
The rating remains driven by New India's leadership position in the Indian General Insurance Industry, evidenced by a market share of 15.8% (based on gross direct premium written in India during nine months ended December 31, 2021). Driven by favourable demand prospects in the health insurance portfolio, the company registered a growth of 19.4% over nine months of fiscal 2022, against an 11% year on year growth registered by the industry. During the same period, the company honoured over Rs 3,000 crore of claims as coverage for Covid-19 cases (higher than the Covid-19 claims honoured during fiscal 2021). Increase in the claims was attributed to higher frequency and severity of Covid-19 instances during the second wave of the pandemic.
Impact of the higher claims was visible in overall underwriting performance; the claims ratio increased substantially to 99.5% for the nine months of fiscal 2022 as compared to 79.3% for the corresponding period of the previous fiscal. Resultantly, combined ratio of the company also increased to 120.0% for nine months fiscal 2022 from 109.6% over the same period of last fiscal. The company’s underwriting performance continues to remain modest. Underwriting deficit for nine months through fiscal 2022 stood at Rs 4,389 crore and its impact on the overall profitability, was offset by a healthy investment income of Rs 5,514 crore. Net profit for the same period was Rs 708 crore.
Nevertheless, financial risk profile of New India remains supported by its healthy capitalization and solvency ratio. On December 31, 2021 – the company’s networth stood at Rs 16,954 crore (adjusted for foreign currency translation reserves, miscellaneous expenditure and deferred tax assets) and its solvency ratio was comfortable at 1.83 times. In addition, the company also had a substantial balance of Rs 20069 crore in its fair value change account.
The rating also continue to factor-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:
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, 2021 - the company held 15.8% of market share. Having underwritten a gross direct premium of Rs 27,004 crore for the first nine months of fiscal 2022, the company registered a growth of 17% on a year on year basis, which is higher than the industrial growth of 11% over the same period. Health was the primary driver for overall growth, followed by fire and marine. 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. In light of the recent announcement on cessation of merger process of the three other public sector insurers which would have resulted in formation of an amalgamated entity with 30% market share, New India will uphold its leadership position in the sector.
Apart from the effect Covid-19 has had on the underwriting performance of the insurance companies, it has also led to an increased awareness about health insurance products among the customers. For fiscal 23, the growth in health insurance portfolio of the sector is expected to correct marginally and stabilize thereafter. An upward revision in pricing of health products is expected which would also contribute to this correction. New business and renewal premium for larger segments like motor insurance could witness some traction as the impact of Covid-19 on the claims performance starts to fade. A hike in tariff rates within the Third Party segment, which was absent for over two years now, can also be expected. However, with increasing ticket size of non-Covid-19 claims, the impact of actual losses borne by the insurers after the second wave– on their underwriting performance and capital and solvency position, remains to be seen.
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.
Capital position of New India has remained healthy reflected in its large net worth of Rs. 19,532 crore as on December 31, 2021. Networth adjusted for un-booked appreciation in equity investments (reflected in its fair-value change account) is even stronger at Rs 37,024 crore. The strong capital position results in a healthy solvency ratio (available solvency margin/required solvency margin) of 1.83 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 4.13 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.
Quality of investments has remains sound. More than 98.9% of its debt investments were in securities rated 'AA' or higher as on December 31, 2021. On the same date, almost 76% of the debt investments had a residual maturity of more than 3 years. Gross non-performing assets stood at 1.43% on December 31, 2021. 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, 2021 stood at Rs 73,766 crore.
Weakness:
New India Assurance's underwriting performance remains modest. For nine months through fiscal 2022, the company's claims ratio of 99.5% was higher than 79.3% incurred for the corresponding 9 months of the previous fiscal. The moderation is attributed to the surge in claims from health insurance portfolio due to increased frequency and severity of Covid-19 instances following the second wave. Against Rs 1,524 crore worth of Covid-19 claims (including off shore losses) honoured by the company in fiscal 2021, Covid-19 claims honoured during 9M 2022 stood at over Rs 3000 crore. Resultantly, the overall loss ratio elevated to 99.5% for 9M 2022 from 79.3% for the corresponding nine months of fiscal 2021. On the expenses side, the ratio improved to 20.5% from 30.3% over the same period. Overall combined ratio, driven by the surge in claims, increased to 120% from 110%. This corresponded to a jump in underwriting deficit for nine months ended December 2021 to Rs 4,389 crore from Rs 1,975 crore for the respective periods. The underwriting performance remains modest for now, however the combined ratio should improve gradually over the medium term, supported by the company’s efforts to improve performance in some of their core segments like motor and health and diversify the portfolio. |
Liquidity: Superior The company's liquidity is comfortable, with a large proportion of liquid investments. On December 31, 2021, government securities (G-secs) accounted for 60% of its investment portfolio based on market value. Additionally, a cash and bank balance of over Rs 9,737 crore and a substantial balance of Rs 18708 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
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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. |
Key Financial Indicators
*(adjusted foreign currency translation reserves, misc. expenditure and deferred tax assets)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Criteria Details
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