New India downgraded by AM Best over 'marginal' ERM
AM Best has downgraded the financial strength rating of New India Assurance Company from A- to B++, citing concerns over the company's "deficiencies in financial reporting" and "persistent underwriting losses".
The rating downgrade follows a revision in AM Best’s assessment of New India’s enterprise risk management (ERM) to marginal from appropriate. The agency said that it considers New India’s ERM to be "below the global standards" for an organisation of its scale.
AM Best also highlighted the government-owned insurer's deficiencies in financial reporting, persistent underwriting losses and volatility-related concerns as factors contributing to the downgrade.
New India’s capital adequacy has deteriorated compared with the 2019 position, largely as a result of an approximately 30 percent decline in its capital and surplus, said AM Best. This was driven by a sharp fall in the market value of New India’s equity investments. The agency further noted that the company’s risk-adjusted capitalisation is increasingly sensitive to further investment market volatility and potential deterioration in the credit quality of the company’s bond investment portfolio amid the COVID-19 pandemic.
New India has reported a five-year average return-on-equity (ROE) ratio of 3.5 percent (fiscal years 2016 to 2020), as calculated by 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".
Furthermore, AM Best expects 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".
AM Best stated that New India remains the largest player in India’s non-life insurance market, ranked by gross premium written, and maintains a dominant position in almost every line of business in its domestic market.
"The company is well-diversified in terms of geographic spread, lines of business and distribution channels," it added. "In comparison with local peers, it stands out as the only direct insurer with a considerable overseas footprint."
