SINGAPORE:
After the Oriental Insurance Company(OIC), international rating agency AB Best has withdrawn its ratings for the state owned United India Insurance Company(UIIC),
AM Best has downgraded the Financial Strength Rating (FSR) to C+ (Marginal) from C++ (Marginal) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “b-” from “b+” for United India Insurance Company.
The outlook of the UIIC's FSR has been revised to negative from stable while the outlook of the Long-Term ICR is negative. Concurrently, these Credit Ratings (ratings) have been withdrawn at the company’s request to no longer participate in AM Best’s interactive rating process.
Earlier in March this year,AM Best had affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) of "bbb-" of the Oriental Insurance Company Limited.The outlook of these Credit Ratings (ratings) remains negative. Concurrently,AM Best had withdrawn these ratings as the company has requested to no longer participate in AM Best’s interactive rating process.
However,both New India Assurance(NIA) and GIC Re which have been also downgraded by the AM Best earlier this month, have preferred to continue with the new ratings,by clarifying that the rating agency hasn't assessed their finacial positions properly.
“The company remains very strong financially, with a solvency ratio of 2.11x. The downgrade action is due to quickly addressable issues, and the company is working in this direction,’’NIA officials had reacted.
“GIC Re has already led decisive action on the domestic Indian property portfolio in 2019/20. These improvements will feed into the financial results going forward. These together with supplemental measures on the underwriting discipline and portfolio rebalancing will put GIC Re on the path of sustained underwriting profitability,'' GIC Re had defended. ..
For UII,the ratings reflect the company’s balance sheet strength, which AM Best categorises as weak, marginal operating performance, neutral business profile and marginal enterprise risk management.
The rating downgrades reflect a downward revision in AM Best’s balance sheet strength assessment for United India to weak from adequate, driven by a decline in risk-adjusted capitalisation as of December 2019 and the expectation of a further material deterioration at fiscal-year end 2020.
AM Best expects the company’s balance sheet strength fundamentals to weaken considerably at fiscal year-end 2020, as continuously weak operating results and mark-to-market losses from the company’s common equities investments are expected to drive a significant decline in shareholder equity. As a result of the aforementioned, the company’s risk-adjusted capitalisation, as measured by the Best’s Capital Adequacy Ratio (BCAR), is projected to decline to a very weak level at fiscal year-end 2020. In addition, as of December 2019, the company’s regulatory solvency margin declined to 0.94 times, which is below the regulatory minimum requirement of 1.5 times.
United India’s financial results for the year ended 31 March 2020 are not yet available, given the regulator’s extension for statutory returns in light of operational challenges brought on by the COVID-19 pandemic.
Over the near term, United India’s balance sheet strength position, including its risk-adjusted capitalisation, remains highly reliant on the timing and magnitude of capital support recently announced by India’s government. The company received formal communication from India’s government for a capital infusion of Rs 10.8 billion (USD 144 million) in the near term, but full details of further capital infusion are unavailable.
The negative rating outlooks reflect the potential for further deterioration in the company’s risk-adjusted capitalisation over the near to medium term due to a volatility of operating performance, or if sufficient capital support is not received from India’s government in a timely manner.