| IFFCO Tokio General Insurance Company Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||
| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its corporate credit rating (CCR) of ‘CRISIL AA/Stable’ on IFFCO Tokio General Insurance Company Limited (IFFCO Tokio).
The rating continues to reflect an expectation of strong support from IFFCO Tokio’s domestic parent, Indian Farmers Fertilisers Co-operative Ltd (IFFCO; 'CRISIL AA+/Stable/CRISIL A1+'), driven by a strong written articulation from IFFCO to maintain majority stake in IFFCO Tokio and aid the company on an ongoing basis and in the event of distress. IFFCO’s management remains committed to ensuring that IFFCO Tokio maintains a comfortable level of cushion in solvency ratio over regulatory stipulation at all times. IFFCO Tokio is also expected to receive strong financial, managerial and operational support from its foreign parent, Tokio Marine Asia Pte Ltd (Tokio Marine Asia; a part of the Tokio Marine group). During first half fiscal 2023, the company received capital infusion of Rs 500 crore (in respective proportion of shareholding). This in-turn resulted in boosting the solvency margin to 1.79 times as on December 31, 2022.
The rating also factors in IFFCO Tokio’s longstanding presence in the Indian general insurance industry, adequate risk management practices, healthy investment quality and comfortable liquidity. These strengths are partially offset by modest-albeit-improving underwriting performance.
IFFCO Tokio is among top 10 private general insurance companies in India, with a market share of 3.8% (based on gross direct premium written in India in nine months ended fiscal 2023). Against an industrial growth of 16% in fiscal 2022, the company’s gross direct premium grew at 12.7%. The company focussed on the profitable segments in motor insurance and limit their exposure in the crop insurance which led to lower growth than the industry.
In nine months ended 2023, the company reported growth of 28.4% year on year in the health insurance segment as against the industry growth of 21% in the same segment. The growth in the motor segment has been slower at 9% during the same period. As of December 2022, share of motor and health stood at 41% and 22% respectively as compared to 43% and 20% respectively during the same period previous fiscal. During the same period, other segments such as engineering, marine, personal accident and liability have also reported a good growth though on a small base. |
Analytical Approach CRISIL Ratings has assessed the standalone business, financial and management risk profiles of IFFCO Tokio and then, a notch up has been applied to indicate the company’s strategic importance to its majority parent (IFFCO) and support expected thereof. |
Key Rating Drivers & Detailed Description Strengths:
IFFCO Tokio derives strong managerial, operational and funding support from parent companies, IFFCO and Tokio Marine Asia. Strong managerial support is reflected in the significant representation of the parent companies on the company's board and their high involvement in its functioning. IFFCO's position as India's leading fertiliser manufacturer and its extensive cooperative network benefits IFFCO Tokio not only in terms of low cost of operations but also greater opportunities for entering highly under-penetrated rural markets. The company also benefits from the Tokio Marine group's association with established automobile manufacturers and strong risk management capabilities. Both parent companies are committed to provide strong financial support to IFFCO Tokio; this can be evidenced from Rs 500 crore of capital infusion by IFFCO and Tokio Marine into IFFCO Tokio in the second quarter of fiscal 2023. Additionally, Rs 400 crore was infused in fiscal 2022 by IFFCO and Tokio. Marine. The company will continue receiving additional capital from the parents over the medium term to support its growth plans.
IFFCO Tokio, one of India’s first private sector general insurance companies, has been in the industry for over two decades. It is the sixth-largest private insurers (excluding standalone health insurers) in India, with a market share of 3.8% based on gross direct premiums written as of 9M2023 and was at similar levels in fiscal 2022 as well. The company underwrote gross direct premium of Rs 7,116 crore in 9M2023, registering a growth of 12.7% year on year against industry-level growth of 16.2%. The lower growth primarily stemmed from slowdown in key segments such as motor and crop insurance businesses.
On the other hand, in nine months fiscal 2023, company has shown 28.4% year on year growth in the health segment. Apart from health insurance other niche segments such as Marine, personal accident, engineering and liability have also shown good growth during the same period.
Business mix has remained dominated by the motor segment to the extent of 41% based on gross direct premiums in nine months ended fiscal 2023. The share of health segment increased to 22.2% in nine months ended fiscal 2023 as compared to 19.5% during the same period previous fiscal owing to increased awareness and demand for indemnity products. The share of crop segment stood at 11.6% during the same period. Over the last three years, the company has strengthened its distribution network by venturing into newer geographies. This enabled the company to cater to the large untapped market for general insurance products and has helped it in sustaining its portfolio diversity.
IFFCO Tokio has a comprehensive risk management policy and framework to ensure all material risks that may affect the company are identified, assessed and monitored periodically and reported to the management in a structured manner. In addition, the company has laid down adequate controls to mitigate business risks such as the risk of loss due to inadequate pricing, reserving or reinsurance protection. The company is also undertaking multiple steps such as having a quick claims settlement platform, intended to speed up claims settlement. The risk management committee, comprising the chief risk officer and other senior executives, meet regularly to identify and assess enterprise level risks including business risks and take necessary corrective actions. The committee also continuously reviews the investments, reinsurance securities, adequacy of reserve and solvency ratio to ensure financial stability. IFFCO Tokio is expected to benefit from its adequate risk management practices and continue maintaining a stable financial risk profile.
The company has 99% of its investment book in government securities (G-secs) or corporate securities rated ‘AAA’ as on December 31, 2022. In addition, liquidity is comfortable, with a large proportion of liquid investments, G-secs accounted for 51% of the investment portfolio based on market value as on December 31, 2022. The portfolio quality is expected to remain healthy, supported by its conservative approach towards risk in the investment portfolio.
Weakness:
IFFCO Tokio has shown improvement in the underwriting performance during the nine months ended fiscal 2023, evident by decline in the combined ratio to 110.5% as compared to 116% during the same period in the previous fiscal. The underwriting losses are largely due to higher claims in the health insurance segment and marginal increase in expense ratio. As a result, the company reported an underwriting loss of Rs 588 crore in 9M2023 as compared to Rs 715 crore during the same period in the previous fiscal. Nonetheless, despite a modest underwriting performance, overall earnings profile remains supported by healthy investment income. The company reported investment income of Rs 717 crore in 9M2023 as compared to Rs 827 crore during the same period last fiscal resulting in overall profit after tax of Rs 97 crore in 9M2023 as compared to Rs 91 crore in 9M2022. Over the medium to long term, IFFCO Tokio’s robust risk management practices are expected to gradually boost the underwriting performance of the company. |
Liquidity: Strong Liquidity, in relation to the scale of business, has been strong. Apart from adequate reserving against anticipated claims, liquidity is supported by a highly liquid investment portfolio. As on December 31, 2022, G-secs formed 51% of the investment portfolio with a majority of other investments remaining in debt securities. As a philosophy, the company continues to maintain negligible investments in equity. Also, majority of the company's investment in corporate debt securities are rated AAA. As on December 31, 2022, liquid assets stood at Rs 7,987 crore, which is adequate against the technical reserves maintained by the company as on that date. Investments cover on networth has also been comfortably above 300% over the last many years. More so, given the constant support from the parent companies – as demonstrated in the past, flexibility to raise timely, need-based funds from them remains high. |
Outlook: Stable IFFCOTokio is strategically important to the parent entities and will receive strong financial, managerial, and operational support on an ongoing basis and in the event of distress. The company will benefit from its longstanding presence in the Indian general insurance industry and continue to maintain its market share, while sustaining adequate risk management practices, healthy investment quality and comfortable liquidity. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company IFFCO Tokio is among top 10 private general insurance companies in India and has been in this business for almost two decades. IFFCO (India’s largest fertiliser manufacturer) and Tokio Marine Asia (a part of the Tokio Marine group; Japan’s oldest and largest general insurance group) have ownership of 51% and 49%, respectively, in IFFCO Tokio, as on December 31, 2022. |
Key Financial Indicators
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Any other information: Not applicable |
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Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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