September 30, 2013

Mumbai

The New India Assurance Company Limited

Rating Reaffirmed

CRISIL’s financial strength rating on The New India Assurance Company Ltd (New India Assurance) continues to reflect the support that New India Assurance is likely to get from its sole owner, the Government of India (GoI). The ratings also reflect New India Assurance’s leading market position in the general insurance industry in India, strong capitalisation, sound asset quality, and healthy liquidity. These rating strengths are partially offset by the profitability pressures the company faces in its underwriting business.

CRISIL believes that public-sector general insurance companies, including New India Assurance, are systemically important, and will therefore receive support from the GoI in the unlikely event of a strain in their claims-paying ability. Furthermore, the GoI entirely owns these companies. This, CRISIL believes, puts a moral obligation on the GoI to support these companies at all times. Also, public-sector insurance companies have a dominant aggregate market position in the insurance sector. These companies together had around 57 per cent share in the gross premia originated in India in 2012-13 (refers to financial year, April 1 to March 31). While competition has intensified in the sector with the entry of new players and de-tariffication in key products, New India Assurance has retained its leading market position (14.5 per cent market share based on gross premium written in 2012-13) in the general insurance industry. The company’s long and established track record, superior market reach, both in India and abroad (as reflected in its presence across 22 countries), and its status as a GoI-owned entity will continue to support its leading competitive position.

New India Assurance’s strong capital position is reflected in its large net worth of Rs.85 billion as on March 31, 2013. Also, the solvency ratio reported was 2.50 times as on March 31, 2013. The capital position increases further to Rs.242 billion if the mark-to-market gains from its investment portfolio (reflected in the fair value change account) are factored in. Moreover, New India Assurance has sound asset quality. Investments in government securities (G-secs) and equities comprised 22 per cent and 59 per cent, respectively, of the company’s investment portfolio, based on market value of investments as on March 31, 2013. The company’s equity portfolio (market value Rs.184 billion as on March 31, 2013) is more than adequate to cover its net non-performing assets. In addition, New India Assurance’s liquidity remains comfortable, with a high proportion of liquid investments.

However, like other public-sector insurance companies, New India Assurance has consistently reported underwriting losses; for 2012-13, the company reported underwriting loss of Rs.18.3 billion (Rs.22.8 billion for 2011-12). Underwriting losses in 2012-13 were caused by the second round of reserving requirement in the motor third-party pool. However, the company’s combined ratio¹ has improved to 117 per cent during 2012-13 from 124 per cent during 2011-12. CRISIL expects New India Assurance’s combined ratio to improve marginally over the medium term, given the increase in pricing in the motor third-party pool by Insurance Regulatory and Development Authority. However, the general insurance industry is likely to face pressure on underwriting performance unless risk-based pricing is implemented across key segments.

Outlook: Stable

CRISIL believes that New India Assurance will maintain its leading market position in the Indian general insurance industry over the medium term and continue to receive support from the GoI in the event of financial distress. CRISIL also believes that New India Assurance will maintain its superior capitalisation and strong liquidity. However, like all public-sector insurance companies, New India Assurance is yet to demonstrate its ability to generate underwriting profits. The outlook may be revised to ‘Negative’ if New India Assurance continues to incur substantial underwriting losses, or if its market position weakens.

About the Company

New India Assurance is India’s largest non-life insurance company. It is the only Indian general insurance company that has a strong market position in India and a significant reach outside India. In India, New India Assurance operates through 28 regional offices, 409 divisional offices, 575 branch offices, 27 direct agent branches and 555 micro-offices. It is also present in 21 other countries through a network of 19 branch offices, 7 agencies, 4 associate companies and 3 subsidiary companies including 1 fully owned subsidiary. The company had a large employee base of 18,935 as on March 31, 2013.

New India Assurance was established in 1919 by Sir Dorab Tata and nationalised in 1973. On nationalisation, it became one of the four subsidiaries of the General Insurance Company of India. The four general insurance companies were then divided across the four geographical regions, and New India Assurance was allotted the western zone.

For 2012-13, New India Assurance reported 17.5 per cent year-on-year growth in its gross premiums originated in India to Rs.100.4 billion from Rs.85.4 billion for 2011-12. The company reported underwriting losses of Rs.18.3 billion for 2012-13, compared with Rs.22.8 billion for 2011-12. New India Assurance reported a net profit of Rs.8.4 billion for 2012-13, compared with a net profit of Rs.1.8 billion for 2011-12.

¹ Combined ratio = Net incurred claims ratio + expense ratio. A high combined ratio indicates the company’s high proportion of payouts vis-à-vis premium received. Net incurred claims ratio is calculated as a percentage of net premiums earned.