Rating Rationale
June 22, 2016 | Mumbai
The New India Assurance Company Limited
Rating Reaffirmed 
 
Financial Strength Rating AAA/Stable (Reaffirmed)

CRISIL has reaffirmed its 'AAA/Stable' rating on The New India Assurance Company Limited (New India Assurance), indicating that the company has the highest degree of financial strength to honour obligations of its policyholders. The rating continues to reflect the company's leadership position in the Indian general insurance industry, its healthy capitalisation, sound asset quality, and comfortable liquidity. The rating also factors in New India Assurance's 100 percent ownership by, and its strategic importance to, the Government of India (GoI). These rating strengths are partially offset by New India Assurance's modest, albeit improving, underwriting performance.

New India Assurance has maintained its leadership position in the Indian general insurance industry; it registered growth of 14.8 per cent in gross direct premium during the FY 2015-16, compared to the industry average of 13.6 per cent (excluding specialized insurers), and increased its market share (excluding specialized insurers) to 16.6 per cent during the same period (based on gross direct premium written in India) from 16.4 per cent for the corresponding period of previous fiscal year. The company is the only Indian general insurer with sizeable international presence, spread across 28 countries; 14.7 per cent of its gross direct premium during the FY 2015-16, originated from outside India. CRISIL believes New India Assurance will continue to benefit from its long and established track record and superior market reach. Its status as a GoI-owned entity will also enable it to strengthen its leadership position in the Indian general insurance sector by increasing its market share, especially in the large, mid- and small-corporate sector, despite intensified competition.

New India Assurance has healthy capitalisation as reflected in its adequate net worth of Rs. 98.2 billion and solvency ratio of 2.3 times as on March 31, 2016. The net worth and solvency ratio as on this date will improve to Rs.289 billion and 7.08 times, respectively, if the mark-to-market gains of Rs.191 billion from its investment portfolio (reflected in the fair value change account) are factored in. Moreover, New India Assurance has sound asset quality. 96.9 per cent of its debt investments are in securities rated 'AA' or higher as on March 31, 2016. In addition, liquidity is comfortable, with a large proportion of liquid investments. Government securities (G-secs) and equities accounted for 27 per cent and 53 per cent, respectively, of its investment portfolio based on market value as on March 31, 2016.

New India Assurance is also strategically important to GoI because of its dominant market position (more than 20 million policyholders) and because it is the flagship Indian general insurer in 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. CRISIL believes general insurance companies, especially government-owned entities are systemically important and will receive support from GoI in the unlikely event of strain on their credit risk profile.

New India Assurance's underwriting performance has been modest in the recent past. The company reported underwriting loss of Rs.31 billion during the FY 2015-16 (Rs.22 billion a year ago). The combined ratio1 was at 118.8 per cent during the FY 2015-16 as against 115.2 per cent for FY 2014-15. However, its financial position is supported by its substantial investment income of Rs.39.5 billion for the FY 2015-16 (Rs.38.2 billion a year ago). CRISIL believes the combined ratio will improve, though gradually, supported by its efforts to better performance of its health insurance portfolio and increase in tariffs in the motor third-party business. However, to ensure steady state underwriting performance, CRISIL believes risk-based pricing needs to be implemented across other key segments such as health, fire, and marine.

Outlook: Stable
CRISIL believes New India Assurance will sustain its leadership position in the Indian general insurance industry and maintain its healthy capitalisation, sound asset quality, and comfortable liquidity, over the medium term. The outlook may be revised if the company incurs substantial underwriting losses, adversely impacting its profitability. A sizeable change in the extent of ownership or strategic importance of New India Assurance to GoI may also result in a revision in outlook.
About the Company

New India Assurance is India's largest non-life insurance company. It is the only Indian general insurance company that has strong presence in India and significant reach outside India. In India, New India Assurance operates through 2329 offices: 31 regional offices, 6 large corporate offices, 447 divisional offices, 578 branch offices, 27 direct agent branches, and 1239 micro-offices. It operated in 28 countries through a network of 18 branch offices, 7 agencies, 3 associate companies, and 3 subsidiary companies, including 1 fully owned subsidiary and 1 representative office, as on March 31, 2016.
 
New India Assurance was set up 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 Co. Ltd. was allotted the western zone.
 
New India Assurance reported a net profit of Rs.8.3 billion for FY 2015-16, as against Rs.14.3 billion for FY 2014-15.

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

Links to related criteria
Rating Criteria for General Insurance Companies
Criteria for Notching up Stand Alone Ratings of Entities Based on Government Support
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