Rating Rationale
June 29, 2018 | 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 the financial strength rating of The New India Assurance Company Limited (New India Assurance) at 'AAA/Stable' indicating that the company has the highest degree of financial strength to honour its policyholders' obligations.
 
The rating continues to reflect New India's leadership position in the Indian general insurance industry, evidenced by a market share of 15% (based on gross direct premium written in India in fiscal 2018). The company is also the flagship Indian general insurer in the international markets, with a desk at the prestigious Lloyd's syndicate in London. Gross direct premium for the company aggregated Rs 25,159 crore in fiscal 2018, growing 16.5% over the previous fiscal. Capitalisation remains healthy, too, with adjusted networth (including un-booked appreciation in equity investments) of Rs 37,014 crore and adjusted solvency ratio (including un-booked appreciation in equity investments in available solvency margin) of 6.88 times as of March 2018. The portfolio quality is sound, with over 99% of debt securities rated 'AA' or above. Moreover, liquidity is comfortable, with 34% 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 albeit improving underwriting performance. Underwriting deficit declined to Rs 2524 crore in fiscal 2018, from Rs 3554 crore the previous fiscal. Profitability is, however, supported by healthy investment income, which grew to Rs 5167 crore in fiscal 2018 from Rs 4518 crore in the previous fiscal, resulting in an increase in net profit to Rs 2201 crore from Rs 1008 crore.

Key Rating Drivers & Detailed Description
Strengths
* Leadership position in the Indian general insurance industry
With a gross direct written premium of Rs 22,696 crore from Indian operations in fiscal 2018, New India Assurance maintains its leadership position in the Indian general insurance industry with a market share of 15%. 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, 460 divisional offices, 630 branch offices (including 27 direct agent branches), 1341 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 is also the sole Indian general insurer with sizeable international presence, spread across 28 countries. Foreign operations contributed 10% of the company's overall gross direct premium written of Rs 25159 crore in fiscal 2018. New India Assurance will continue to benefit from its long and established track record and superior market reach and market share over the medium term, despite intensified competition.
 
 
* Healthy capitalisation and solvency ratio
Capital position is among the strongest in the Indian non-life industry. Networth was Rs 14,126 crore as of March 2018, having increased from Rs 10,799 crore a year earlier, bolstered by steady internal accrual and capital infusion via the initial public offering. Networth adjusted for un-booked appreciation in equity investments (reflected in its fair-value change account) is even stronger at Rs 37,014 crore. The strong capital position results in a healthy solvency ratio (available solvency margin/required solvency margin) of 2.58 times'which is among the highest in the domestic non-life industry. The solvency ratio, after adjusting for un-booked appreciation in equity investments in available solvency margin, is substantially higher at 6.88 times. Capitalisation should remain healthy over the medium term.
 
* Sound investment quality
Over 99% of New India Assurance's debt investments were in securities rated 'AA' or higher as on March 31, 2018. In addition, liquidity is comfortable, with a large proportion of liquid investments. Equities accounted for nearly half of its overall investments on a market value basis, while Central government securities accounted for nearly a third of the debt investments.
 
* Strategic importance to, and expectation of continued support from the GoI
New India Assurance is strategically important to GoI because of its dominant market position (over 20 million policy) and because it is the flagship Indian general insurer in the 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 the government in the event of strain on their credit risk profiles.
 
Weakness
Modest albeit improving underwriting performance
Underwriting performance remains modest, though underwriting losses have reduced to Rs 2524 crore in fiscal 2018, from Rs 3554 crore for the previous fiscal, which is reflective of gradual improvement in underwriting performance. Also, the combined ratio has improved to 111.2% from 118.7% the previous fiscal, driven by improvement in performance across segments. Measures such as revision in the prices for corporate and retail health segments and appointment of doctors for better claims management, avoiding of dealers with a high-loss ratio in the motor own damage segment, and strengthening of risk management practices in corporate segments etc. should help further improve underwriting performance over the medium term.
Outlook: Stable

New India Assurance should continue to benefit from its leadership position in the Indian general insurance industry and maintain its market share, healthy capitalisation, sound asset quality, and comfortable liquidity over the medium term. New India Assurance will also receive support from GoI, in the unlikely event of financial distress. The outlook may be revised if substantial underwriting losses adversely impact profitability. Sizeable changes, if any, 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 along with United India Insurance Company Limited, The Oriental Insurance Company Limited and National Insurance Company Limited got autonomy. Presently, GoI holds 85.44% stake in New India Assurance. It is the only Indian general insurance company that has a strong presence in India as well as good reach outside India. 

Key Financial Indicators
Particulars Unit 2018 2017
Gross direct premium written Rs crore. 25,159 21,598
Profit after tax Rs crore 2201 1007
Combined ratio % 111.2% 118.7%
Solvency ratio Times 2.58 2.19
 

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 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Financial Strength Rating  LT  0.00  AAA/Stable      28-06-17  AAA/Stable  22-06-16   AAA/Stable   --  -- 
All amounts are in Rs.Cr.
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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