After hitting a record 19% market share in the June quarter from 14% in March 2020, the New India Assurance(NIA),the largest Indian general insurance multinational,is now focussing on to grow its profitability.   

“While the operating performance compared to last year had significantly improved, there is still a long way to go. The combined ratio needs further to come down by at least 8%-10% compared to FY20 in the near term,’’ said  senior officials of the company.

Even on Thursday,while downgrading the NIA’s Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb+” from “a-”.AM Best has affirmed these ratings reflect NIA’s balance sheet strength,which the rating agency categorises as very strong, as well as its adequate operating performance, favourable business profile and marginal enterprise risk management (ERM).

AM Best also revised the outlook of these ratings to stable from negative for the company, 

This is supported by its risk-adjusted capitalisation,which remained at the strongest level as of March 31, 2020, as measured by Best’s Capital Adequacy Ratio (BCAR), said AM Best..

NIA's rating downgrades follow a revision in AM Best’s assessment of New India’s ERM from appropriate to marginal.The company’s deficiencies in financial reporting continue to result in audit qualifications.In addition,NIA’s  persistent underwriting losses and volatility raise concern over the company’s ability to select and price the risks appropriately, said AM Best rating note.

While the unique features of India’s market and the company’s role as government-owned insurer may impact the strategy, AM Best considered NIA’s  ERM to be below the global standards for an organization of its scale,said AM Best.

Reacting to the move by the AM Best to downgrade the credit ratings of the company,NIA officials felt  that the reasons for downgrade were `flimsy' and explained that the methodology adopted in the provisioning on account of “one more option for pension(OMOP)' was as per necessary permissions.The insurance regulator IRDAI had also communicated later,its consent on this,in writing, which was duly informed to the rating agency but it did not change its view, said officials..

“The company remains very strong financially, with an IRDAI solvency ratio of 2.11x. The downgrade action is due to quickly addressable issues, and the company is working in this direction,’’ said NIA officials.

NIA's capital adequacy has deteriorated compared with the 2019 position,largely as a result of an approximately 30% decline in its capital and surplus. This was driven by a sharp fall in the market value of New India’s equity investments,added AM Best.

In addition,in the near to medium term,the capital and surplus might be negatively impacted by an additional pension liability of Rs 16.4 billion (USD 218 million) resulting from a recent regulatory amendment. Consequently,the company’s risk-adjusted capitalisation is increasingly sensitive to further investment market volatility and/or potential deterioration in the credit quality of the company’s bond investment portfolio, amid the COVID-19 pandemic,said AM Best..

Underwriting performance,while improved in fiscal-year 2020 compared with the prior year, has remained poor owing to persistent losses from its motor and health business, coupled with severe deteriorations in loss experience for engineering, crop and other miscellaneous classes of business in fiscal-year 2020,said AM Best

Furthermore,AM Best expected that investment income,which the company has relied on mainly to offset underwriting losses and produce operating profits for many years,could be weakened over the near to medium term as the central bank lowers interest rates and companies reduce dividend payouts to conserve resources during the current economic downturn.

However,AM Best has further said the NIA’s business profile is assessed as favourable.

“New India remains the largest player in India’s non-life insurance market, ranked by gross premium written. It remains the largest player in India’s non-life insurance market, ranked by gross premium written. In addition, In addition, NIA Maintains a dominant position in almost every line of business in its domestic market. Furthermore, the company is well-diversified in terms of geographic spread, lines of business and distribution channels. In comparison with local peers, it stands out as the only direct insurer with a considerable overseas footprint,’’ affirmed AM Best..