AM Best states that The New India Assurance, the largest non-life insurer in India, has produced excellent operating results over the past five years, with a return-on-equity ratio averaging 3.3% (fiscal years 2017-2021).
As a result of a rise in underwriting losses, New India's net income for the fiscal year ending 31 March 2022 (FY2022) decreased dramatically compared to the prior year, despite the fact that the company remained profitable.
Underwriting performance in FY2022 was weaker than the previous year, primarily due to the company's poor loss experience in its health insurance segment due to COVID-19 and a higher claims ratio in its motor business, although partially mitigated by lower management expenses and net acquisition costs.
Strong investment income, such as interest and dividend income, as well as realized profits from the sale of stock investments, remained an essential component of overall earnings.
In the near to medium term, AM Best anticipates that adverse market conditions and the impact of the ongoing COVID-19 epidemic would limit the company's underwriting and investment earnings, but overall operating results are anticipated to remain profitable.
Ratings upheld
AM Best has affirmed New India's B++ (Good) Financial Strength Rating and bbb+ Long-Term Issuer Credit Rating (Good). Stable is the outlook for these credit grades.
The grades reflect AM Best's very good assessment of New India's balance sheet strength, as well as the company's adequate operating performance, favorable business profile, and marginal enterprise risk management (ERM). The ratings also account for the neutral impact of the Indian government's ultimate majority control of the enterprise.
As evaluated by Best's Capital Adequacy Ratio, New India's risk-adjusted capitalisation maintained at its highest level in FY2022, underpinning its balance sheet strength evaluation (BCAR). AM Best considers the investment portfolio of the corporation to be somewhat risky. Owing to the company's allocation to domestic equity investments, the balance sheet remains susceptible to volatility despite the fact that the majority of investments are comprised of domestic government and business bonds with high local credit ratings.
Even though the company maintains a reinsurance counterparty concentration with General Insurance Corporation of India, the majority of New India's reinsurance assets are of high credit quality (GIC Re).
Business description
AM Best views Given its market-leading position as the largest non-life insurer in India by total gross premium written, as well as in significant business lines, such as health, marine, and fire, New India has a favorable business profile.
The company's underwriting portfolio is relatively diversified by lines of business and distribution channels, however health insurance is gaining market share.
The company's abroad branches, agency offices, and subsidiaries contribute to its geographical diversification on an international scale.
New India has substantial underwriting capacity to insure huge risks in India and abroad due to the company's substantial capitalization and utilization of reinsurance. AM Best believes increased market rivalry, notably in the health and automotive industries, to be a mitigating factor, despite the fact that the domestic market continues to provide the company significant growth potential.
The ERM of New India is rated as minor. The ERM framework continues to evolve, and the profile of certain significant risks exceeds the company's risk management capabilities. While the company is making progress on strengthening internal controls and has partially addressed some audit issues, poor resolution of audit issues has had a negative impact on the quality of financial reporting over a number of years. In light of the company's continuous underwriting losses, price discipline and underwriting risk management continue to raise concerns.
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