Detailed Rationale

Crisil Ratings has downgraded its corporate credit rating on The Oriental Insurance Company Limited (Oriental Insurance) to ‘Crisil AA-/Negative’ from ‘Crisil AA/Negative’.

 

The rating downgrade is driven by the lack of improvement in the company’s solvency profile, with the solvency ratio remaining below the regulatory stipulation. The reported solvency ratio declined from 0.15 times as on March 31, 2022, to negative 1.05 time (excluding the balance in the fair value change account) as on December 31, 2024, driven by high underwriting losses. Though the underwriting performance has improved compared with previous fiscals, it remains weak, as reflected in combined ratio of 120.4% for the first nine months of fiscal 2025, thus constraining profitability. Ability to sustain or improve the underwriting performance hereon remains to be seen.

 

Negative accretion to networth led to moderation in capital position and significant reliance on equity support from the parent, the Government of India (GoI). The government had infused Rs 1,200 crore equity into the company in March 2022, over and above the Rs 3,220 crore infused between the fourth quarters of fiscals 2020 and 2021. However, there was no infusion in fiscals 2023, fiscal 2024 and 9MFY25. Reported networth as on December 31, 2024, was negative Rs 3,463 crore and negative Rs 3,831 crore on March 31, 2024. While the balance in the fair value change account provides some comfort, the ability to accelerate improvement in the underwriting performance to revive the solvency position remains a key monitorable.

 

The ratings continue to centrally factor in the company's strategic importance to and the expectation of strong support from GoI, in addition to its established market position in the Indian general insurance industry.

Analytical Approach

Crisil Ratings has first arrived at Oriental Insurance's corporate credit rating, which is an indication of the company's ability to honour its debt obligation and obligations to policy holders. For arriving at the corporate credit rating, Crisil Ratings has factored in expectation of strong government support, in addition to assessment of the company’s business, financial and management risk profiles.

Key Rating Drivers & Detailed Description

Strengths:

• Strategic importance to, and expectation of strong support from, the Government of India: Oriental Insurance is expected to receive strong support from the government on a steady state basis, driven by its established market position in the Indian non-life insurance sector, which makes it strategically very important to the government. The importance of the general insurance sector, especially government-owned insurers, can also be perceived in the context of GoI's plan to materially enhance insurance penetration over the long term. As a demonstration of their strategic importance and the government stance on extending timely support, public general insurers were allotted Rs 12,450 crore of capital by GoI in July 2020 (including Rs 2,500 crore already infused in March 2020). Oriental Insurance, National Insurance Company Ltd (National) and The United India Insurance Company Ltd (United) cumulatively received Rs 2,500 crore in fiscal 2020 and Rs 9,950 crore in fiscal 2021. Of this allocation, Oriental Insurance received Rs 50 crore in fiscal 2020 and Rs 3,170 crore in fiscal 2021. Eventually, in the fourth quarter of fiscal 2022, the three public sector undertakings (PSUs) received Rs 5,000 crore from the government, of which Rs 3,700 crore was infused in National, Rs 1,200 crore in Oriental Insurance and Rs 100 crore in United. Along with the capital allocation, the government also announced its decision to shelve the merger of Oriental Insurance with National and United and focus on improving the standalone financial risk profiles of these entities. However, the government did not infuse any capital in fiscals 2023, fiscal 2024 and nine months of fiscal 2025. Crisil Ratings will continue to monitor developments in this regard.

 

• Established market position with long track record and extensive market reach: Oriental Insurance, with a market share of 6.4% for 11MFY25, is the fifth largest player in the Indian general insurance space with 1,192+ branches across the country. More significantly, its status as a GoI-promoted entity has enabled the company to sustain its competitive edge amidst intensifying competition. For the nine months ended December 31, 2024, the company underwrote gross direct premium of Rs 15,357 crore, up 10.5% on y-o-y basis. The company’s motor and personal accident segment grew at a healthy pace as compared to the industry growth. It underwrote the government’s crop insurance scheme, Pradhan Mantri Fasal Bima Yojana (PMFBY) as well, which supported the overall growth. Health & Motor insurance formed 41% and 21% of the gross direct premium of the company respectively as on December 31, 2024.

 

Weaknesses:

• Modest capital position, reported solvency ratio has remained below regulatory stipulation: Capitalisation and solvency position remain strained for OICL. Reported solvency ratio, excluding the balance in the fair value change account, has been below 1.5 times for over 20 quarters now. However, the exceptional approval by Insurance Regulatory and Development Authority of India (IRDAI) has allowed Oriental Insurance to include the balance in the fair value change account in the available solvency margin for calculating solvency. Resultantly, as on December 31, 2024, the reported solvency ratio was negative 1.05, and factoring in 75% of balance in the fair value change account (for which the company has applied for forbearance) the adjusted solvency ratio was 0.12 times.

 

However, on account of positive accrual, the company’s networth has seen slight improvement from negative Rs 3,831 crore as on March 31, 2024, to negative Rs 3,463 crore as on December 31, 2024. Improvement in the capitalisation and solvency position depends on equity support from the government and the company’s fair value change balance. Regulatory relaxations in terms of including the fair value change balance in the solvency reporting provide some comfort. While the company has been taking measures to take its solvency position above 1.5 times, this has been disrupted by various factors. Continued weakness in underwriting and weak albeit improving profitability have led to continued moderation in the capital and solvency position of the company and remain key rating sensitivity factors.

 

• Weak underwriting performance, albeit moderate: The underwriting performance of Oriental Insurance has remained weak. After recognition of additional reserving requirement in the motor third-party business in fiscal 2017, the company’s underwriting performance has been volatile thereon. For fiscal 2024, the company reported an underwriting loss of Rs 3,468 crore as against an underwriting loss of Rs 7,693 crore for the previous fiscal 2023 Correspondingly, the combined ratio for fiscal 2024 stood at 121% as against 155% for fiscal 2023. For the nine months ended December 31, 2024, the company’s combined ratio was 120%. Ability to improve and sustain underwriting performance will remain monitorable.

 

• Modest earnings profile: The earnings profile  remains weak, constrained by the company’s modest underwriting performance and inadequate, though increasing, investment income. The underwriting performance improved during the nine months ended December 31, 2024. This and investment income helped the company report profit after tax (PAT) Rs 368 crore during the period from loss of Rs 29 crore for the same period of the previous fiscal. Ability to improve the underwriting performance and sustain it such that overall profitability is revived, leading to improvement in the capital position and solvency ratio rising to the regulatory stipulation, will remain monitorable.

Liquidity: Superior

Liquidity remains comfortable, supported by adequate investments parked in highly liquid government securities. As on December 31, 2024, such investments formed 42% of the investment portfolio. Liquid assets were Rs 14,597 crore on December 31, 2024, largely parked in government securities. This also included cash balance of Rs 2,382 crore. The company also benefits from un-booked appreciation in equity investments and an extensive base of fixed assets, which can be dipped into if needed.

Outlook: Negative

Oriental Insurance’s capital and solvency profile will remain vulnerable due to weak underwriting performance and earnings. However, the company will likely maintain its competitive position in the Indian general insurance industry and will continue to receive support from GoI in the unlikely event of financial distress.

Rating sensitivity factors

Upward factors:

• Substantial and sustained improvement in the reported solvency ratio such that it stays above 1.5 times on a steady state (excluding all forbearances)
• Significant and sustained improvement in underwriting performance and profitability, leading to significant improvement in the capital position

 

Downward factors:

• Solvency margin (excluding balance in fair value change account) remaining below 1.5 times for a prolonged period of time and lack of improvement in underwriting performance on a sustained basis, leading to an adverse impact on profitability
• Any change in the stance of support from GoI, or significant dilution of stake by GoI

About the Company

Oriental Insurance is India’s fifth-largest non-life insurance company in country with market share of 6.4% as on February 2025. Set up in Mumbai in 1947, the company commenced operations as a wholly owned subsidiary of Oriental Government Security Life Assurance Company Ltd. It was a subsidiary of Life Insurance Corporation of India (LIC) from 1956 to 1973. Oriental Insurance, with its head office in New Delhi, has an extensive network of over 1,192 branches across the country. The company also has operations in Nepal, Kuwait and Dubai.

Key Financial Indicators

As on/For the period ended March 31,	Unit	2024	2023	2022
Gross direct premium/Gross premium written	Rs crore	18,794	15,993	14,020
Profit/ (loss) after tax	Rs crore	19	(4,968)	(3,115)
Combined ratio	%	121.4	154.6	144.3
Solvency margin	Times	-1.06	-0.95	0.15
Adjusted solvency margin	Times	0.29&	0.18&	1.03^

&Includes 75% of balance in the fair value change account

^Includes 65% of balance in the fair value change account

 

As on/For the period ended December 31,	Unit	2024	2023	2022
Gross direct premium/Gross premium written	Rs crore	15,357	13,894	11,766
Profit/ (loss) after tax	Rs crore	368	(29)	(4,302)
Combined ratio	%	120.4	118.9	156.4
Solvency margin	Times	-1.05	-0.88	-0.90
Adjusted solvency margin^	Times	0.12	0.65	0.26

^Includes 75% of balance in the fair value change account

Any other information: Not Applicable