Rating Rationale
June 28, 2017 | Mumbai
The New India Assurance Company Limited
Rating Reaffirmed 
 
Rating Action
Financial Strength Rating AAA/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'AAA/Stable' rating on The New India Assurance Co Ltd (New India Assurance), indicating that the company has the highest degree of financial strength to honour its policyholders' obligations.
 
The rating continues to reflect New India Assurance's leadership position in the Indian general insurance industry, evidenced by a market share of 15.0% (based on gross direct premium written in India during fiscal 2017). The company is also the flagship Indian general insurer in international markets, with a desk at the prestigious Lloyd's syndicate in London. Gross direct premium for the company aggregated to Rs 21,598 crore for fiscal 2017, growing 21.6% over the previous fiscal. Capitalisation also remains healthy with adjusted networth (including un-booked appreciation in equity investments) of Rs 35,417 crore and adjusted solvency ratio (including un-booked appreciation in equity investments in available solvency margin) of 6.86 times as on March 31, 2017. Moreover, portfolio quality is sound with over 96% of debt securities rated 'AA' or above. Furthermore, liquidity is comfortable, with 25% of investments being in central government securities. The rating also factors in New India Assurance's strategic importance to, and expectation of strong support from, the Government of India (GoI), given the company's strong track record and extensive market reach.
 
These strengths are partially offset by the company's modest underwriting performance. New India Assurance reported an underwriting deficit of Rs 3547 crore during fiscal 2017 against Rs 3101 crore in the previous fiscal. Profitability nevertheless was supported by healthy investment income, which increased to Rs 4518 crore in fiscal 2017 from Rs 3956 crore in the previous fiscal, resulting in an increase in net profit to Rs 1008 crore from Rs 829 crore.

Key Rating Drivers & Detailed Description
Strengths
* Leadership position in the Indian general insurance industry
With a gross direct premium of Rs 19,115 crore from Indian operations, New India Assurance maintained its leadership position in the Indian general insurance industry, with a market share of 15.0%. The company has a pan-India presence, with operations spread across 36 states and union territories. It has the largest branch network among Indian general insurers, with 31 regional offices, 457 divisional offices, 615 branch offices (including 27 direct agent branches), 1344 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.
 
New India Assurance is also the sole Indian general insurer with sizeable international presence, spread across 28 countries. Foreign operations contributed 15.15% of the company's overall gross premium written of Rs 23,021 crore in fiscal 2017.

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 maintain its leadership position in the Indian general insurance sector, despite intensified competition.
 
* Healthy capitalisation and solvency ratio
Capital position is among the strongest in the Indian non-life industry. Networth stood at Rs 11,724 crore as on March 31, 2017. Networth adjusted for un-booked appreciation in equity investments (reflected in its fair-value change account) is even stronger at Rs 35,417 crore. The strong capital position resulted in a healthy solvency ratio (available solvency margin/required solvency margin) of 2.19 times as on March 31, 2017-among the highest in the domestic non-life industry. Adjusted solvency ratio, after including un-booked appreciation in equity investments in available solvency margin, was substantially high at 6.86 times as on March 31, 2017. Capitalisation should remain healthy over the medium term.
 
* Sound investment quality
Over 96% of its debt investments were in securities rated 'AA' or higher as on March 31, 2017. In addition, liquidity is comfortable, with a large proportion of liquid investments. Government securities (G-secs) and equities accounted for 25% and 52%, respectively, of its investment portfolio based on book value on March 31, 2017.
 
* Strategic importance to, and expectation of strong support from GoI
New India Assurance is strategically important to GoI because of its dominant market position (over 20 million policy holders) 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. 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.
 
Weakness
* Modest underwriting performance
New India Assurance reported an underwriting loss of Rs 3557 crore in fiscal 2017 (Rs 3101 crore in the previous fiscal). The combined ratio1 also remains high at 118.7%, though it has marginally improved from 118.8% in the previous fiscal. Moreover, financial position continues to remain supported by an investment income of Rs 4518 crore in fiscal 2017 (Rs 3956 crore in the previous fiscal 2016), resulting in net profit of Rs 1008 crore (Rs 829 crore for fiscal 2016).
 
Furthermore, New India Assurance's combined ratio is expected to improve gradually, supported by its efforts to improve underwriting performance in health, motor own damage, and fire segments, and increase in tariffs in motor third-party business. However, to ensure sound underwriting performance on a steady-state basis, risk-based pricing needs to be implemented across all the major segments.
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. CRISIL also believes that New India Assurance will receive support from GoI in the unlikely event of financial distress. The outlook may be revised if substantial underwriting losses adversely impact 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 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. New India Assurance is the only Indian general insurance company that has a strong presence in India as well as good reach outside India. The company reported a net profit of Rs 1008 crore in fiscal 2017, against Rs 829 crore in the previous fiscal.

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

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size(Rs. Crore) Rating Assigned  with Outlook
NA NA NA NA NA NA NA
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Financial Strength Rating  LT  - AAA/Stable    No Rating Change    No Rating Change    No Rating Change    No Rating Change  AAA/Stable 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
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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