| United India Insurance Company Limited | ||||
| Rating downgraded to 'CRISIL AA+/Negative'; Subordinated debt withdrawn | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has downgraded its rating on the corporate credit rating of United India Insurance Company Limited (United India) to ‘CRISIL AA+/Negative’ from ‘CRISIL AAA/Negative’.
Further, CRISIL Ratings has also withdrawn its rating on Rs 900 crore subordinated debt issue of United India Insurance Co Ltd (United India). The rating withdrawal is based on the redemption of the instrument that was done on February 02, 2023. This is in line with withdrawal policy followed by CRISIL Ratings
The downgrade primarily takes into consideration lack of improvement in the company’s underwriting performance which continues to constrain its earnings profile thereby imposing pressure on its capitalisation and solvency. The company’s underwriting performance remains weak reflected in the combined ratio of 137% for nine months ended December 2022, higher than 133% for the corresponding period of previous fiscal. This time elevated combined ratio was primarily driven by the increase in the expenses due to wage revision that was applied on retrospective basis. Company has incurred Rs 1404 crore as employee cost on accounts of arrears during nine months fiscal 2023 and expected to incur another ~Rs 1000 crore in the Q4 2023 due to the wage revision.
Along-with weak underwriting performance, additional pressure of higher employee costs resulted in higher negative accretions to networth. The consequent impact was on capital position with reported solvency and this has only increased their reliance on equity support from the parent i.e GOI. Reported networth as on December 31, 2022 declined to 407 crore from Rs 2095 crore on March 31, 2022 – owing to accumulating losses. While some comfort is drawn from the availability of balance in fair value change account, the ability to accelerate improvement in underwriting performance to prevent potential pressure on its solvency position remains key monitorable.
The company’s reported solvency ratio has remained vulnerable. From 1.02 times (after including 75% balance of fair value change) as on March 31, 2022, the company’s solvency ratio has sharply declined to 0.12 times (without considering the balance of fair value change) as of December 31, 2022 – driven by high underwriting losses. The government has infused Rs 100 crore as equity into the company in March 2022, over and above the Rs 3655 crore infused between Q4 2020 and Q4 2021. However, there has been no infusion in fiscal 2023.
With a track record of over 75 years, United ranked as the third largest insurer in the industry based on the gross premiums written during nine months ended December 31, 2022 which translates to a market share of 6.9%. The company underwrote Rs 12,742 crore as gross direct premium during the nine months of fiscal 2023, registering a 15.80% year on year growth as against an industrial growth of 16% for the same period.
This growth was driven by healthy and continued traction in demand for health insurance products since the pandemic outbreak followed by growth in the crop insurance segment. Apart from health insurance and crop insurance, the company also grew in niche segments like engineering, personal accident and liability. |
Analytical Approach CRISIL Ratings arrived at the corporate credit rating of United India Insurance, which is an indicator of the company’s ability to honour its debt and policyholder obligations. For arriving at the rating, CRISIL Ratings has factored in the expectation of strong government support. |
Key Rating Drivers & Detailed Description Strengths: Strategic importance to, and expectation of strong support from, GoI United India Insurance is likely to receive strong government support on a steady state basis, driven by its established track record and extensive market reach which make the company strategically important to GoI. The importance of the general insurance sector, especially government-owned insurers such as United India Insurance, can also be perceived from the government plan to materially enhance insurance penetration in the long term. As a demonstration of their strategic importance to the government and the latter’s stance on extending timely support, public general insurers were allotted Rs 12,450 crore of capital by the government in July 2020 (including the Rs 2,500 crore already infused in March 2020). United India Insurance, National Insurance Company Ltd (National) and The Oriental Insurance Company (Oriental) cumulatively received Rs 2,500 crore in fiscal 2020 and Rs 9,950 crore in fiscal 2021. Of this, United India Insurance received Rs 50 crore and Rs 3,605 crore, respectively. In the fourth quarter of fiscal 2022, the three PSUs received Rs 5,000 crore from the government, of which Rs 3,700 crore was infused in National, Rs 1200 crore in Oriental and Rs 100 crore in United India Insurance. However, government has not infused anything in fiscal 2023. Along with the capital allocation, the government also announced its decision of shelving the merger process of Oriental with National and United and focusing on improving the standalone financial risk profiles of these entities. CRISIL Ratings also takes note of the government’s plan announced in the annual budget two year ago – to privatise one of the public general insurers. That plan has also been put off the table as of now. CRISIL Ratings would continue to monitor the developments in this aspect.
Established market position United India Insurance is the third-largest general insurance company in India with a market share of 6.9% based on gross premiums originated during nine months ended fiscal 2022. The company underwrote gross premium of Rs 12,742 crore in nine months ended fiscal 2023, which mark an year on year rise of 15.8% on-year against industry growth of 16%. In line with the trend observed for most of the peers and the sector as a whole, continued traction in health insurance segment has been the key driver for it.
Against a sectoral growth of 21% in health insurance premiums written over nine months of fiscal 2023, United’s health insurance portfolio grew by 14% over the same period. Apart from health insurance, United’s also underwrote Rs 571 crore of crop insurance business in nine months ended fiscal 2023 as against nil portfolio during the same period previous fiscal. Other niche segments like engineering, personal accident and liability have also grown at a good pace. Over the 11 months of fiscal 2023, the company has underwritten Rs 16,116 crore as gross direct premium and is expected to clock an annual growth of 14-16% for full fiscal 2023 driven by Health segment.
Weaknesses: Reported solvency remains below regulatory stipulation and capitalisation dependent on equity infusion by the government Capitalisation and solvency position of United India Insurance remains strained. Reported solvency ratio, excluding the balance in fair value change account, has remained sub 1.5 times for over 16 quarters now. However, IRDAI’s exceptional approval has allowed United (along with Oriental and National) to include the balance in fair value change account in the available solvency margin for calculating solvency. Resultantly, On March 31, 2022, the company reported a solvency ratio of 1.02 times (factoring in 75% of the balance in fair value change account as on that date, excluding the balance in fair value change account – solvency ratio was 0.51 times on that date).
Subsequently, the company’s underwriting performance and overall profitability deteriorated on account of higher expenses due to retrospective wage revision which resulted in a sharp decline in solvency ratio by the close of December 31, 2022 to 0.12 times (without considering balance in fair value change account). Upon including the balance in fair value change account as of that date, the solvency ratio is estimated to have been 0.97 times. On account of negative accruals to networth, the company’s networth also declined from Rs 2,095 crore to Rs 407 crore between March 2022 to December 2022. Nonetheless, United’s capitalisation and solvency position are expected to remain dependent on equity support from the government and the company’s fair value change balance. Additional comfort is drawn from regulatory relaxations allowed by the government to the company, in terms of including fair value change balance in its solvency reporting. While the company has been taking measures to restore its solvency position to above 1.5 times, the traction is slow and has been disrupted by factors like pandemic outbreak. In the meantime, continued weakness in underwriting and overall profitability leading to further moderation in capital and solvency position of the company, remain key rating sensitivity factors.
Modest underwriting performance Underwriting performance had moderated after fiscal 2017. After recognition of additional reserving requirement in motor third party business in fiscal 2017, the company’s underwriting performance has remained volatile. For fiscal 2022, the company reported an underwriting loss of Rs 4,848 crore as against an underwriting loss of Rs 3218 crore for the previous year. Correspondingly, the combined ratio for fiscal 2022 stood at 136% as against 123% for fiscal 2021. For nine months ended December 31, 2022, the company’s combined ratio surged to 137% from 133% for the corresponding period of the previous fiscal, on account of retrospective wage revision to the tune of Rs 1404 crore –translating to an underwriting loss of Rs 4,108 crore for nine months ended December 31, 2022 against an underwriting loss of Rs 3,062 crore for the corresponding period of the previous fiscal. United is expected to incur another Rs 1000 crore in the Q4 2023 due to the wage revision. Excluding the impact due to wage revision in 9M2023, company has shown improvement in the overall underwriting performance, however, the combined ratio has remained high at 125% resulting in weak underwriting performance of the portfolio. Continuous deterioration in the company’s underwriting performance, straining its earnings profile and capitalisation, has remained a key rating sensitivity factor.
Weak earning putting pressure on capital position Earnings remain weak, constrained by modest underwriting performance and inadequate, though stable, investment income. Despite investment income of Rs 2,935 crore for fiscal 2022, the company reported a net loss of Rs 2,136 crore, against a loss of Rs 985 crore in the previous fiscal. For the nine months of fiscal 2023, the company earned Rs 2,550 crore from investments compared to Rs 2,150 crore earned in the corresponding period of the previous fiscal. For nine month ended fiscal 2023, company reported a net loss of Rs 1,691 crore against Rs 1,194 crore for the corresponding period of fiscal 2022. Company’s ability to improve underwriting performance such that overall profitability is revived and capital position and solvency are sustained at strong levels, will remain a key monitorable. |
Liquidity: Superior Almost 99% of the debt investments as on December 31, 2022, were in securities rated ‘AA’ or higher or in sovereign securities. Healthy liquid investments of Rs 18,846 crore also support liquidity. Government securities accounted for 69% of the investment in debt portfolio based on market value as on December 31, 2022. Liquid assets to technical reserves ratio[1] was adequate at 57% as on December 31, 2022. [1] Liquid assets = Cash balance + investments in liquid mutual funds + government securities Technical reserves = Reserve for unexpired risks, premium deficiency and outstanding claims |
Outlook: Negative United Insurance should 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. However, its underwriting performance and overall profitability are expected to remain weak thereby constraining its capitalisation and solvency ratio. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company United India Insurance is the second-largest non-life insurance company wholly owned by GoI. The company commenced operations in 1938. After nationalisation of the general insurance business in 1972, it became one of the four subsidiaries of General Insurance Corporation of India (GIC). In December 2000, the subsidiaries of GIC were restructured as independent companies and GIC became a national reinsurer. United India Insurance has its head office in Chennai and has over 1,472 offices across the country. |
Key Financial Indicators
*Includes 100% of fair value change balance #Includes 65% of fair value change balance @ Includes 75% of fair value change balance |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Note: Annexure has been updated on 29-Apr-23 for Complexity level of the instrument. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Criteria Details
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