SINGAPORE: AM Best has downgraded the Financial Strength Rating (FSR) to B+ (Good) from B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb-” from “bbb+” of Oriental Insurance Company Limited (Oriental) (India).

The outlook of the FSR has been revised to negative from stable, while the outlook of the Long-Term ICR remains negative.

The Credit Ratings (ratings) reflect Oriental’s balance sheet strength, which AM Best categorizes as very strong, marginal operating performance, neutral business profile and marginal enterprise risk management (ERM).

The rating downgrades follow a deterioration in AM Best’s view of Oriental’s operating performance and ERM fundamentals. In particular, the company recorded a sizable underwriting loss of INR 38 billion (USD 549 million) in fiscal-year 2019 (FY2019), equivalent to 32% of its capital base in the prior year, as a result of reserve strengthening from the motor third-party business and the continuation of weak performance from its health portfolio.

The company reported a combined ratio of 136% for FY2019 and a five-year average combined ratio of 132% (FY2015-FY2019). Investment income, including a notable realized gain from the sale of its equity investments, was insufficient to offset the weak technical performance, resulting in an after-tax loss of INR 2.9 billion (USD 42 million) for FY2019.

The marginal assessment on ERM reflects the company’s inability to control its underwriting performance, coupled with the negative impact on its balance sheet strength and earnings. Furthermore, while the company has initiated and implemented several remedial actions over the past few years, Oriental’s risk management capabilities are viewed to be marginal compared with the profile of its key risks.

The company’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), deteriorated during FY2019, although it remained at the strongest level. This was supported partially by the company’s issuance of subordinated debt in the last quarter of the fiscal year.

Oriental’s balance sheet strength has been under further pressure as a result of large underwriting losses and substantially increased underwriting leverage stemming from reserve strengthening. The company’s capital and surplus reduced by 11% in FY2019 to INR 104 billion (USD 1.5 billion) from INR 118 billion (USD 1.8 billion), increasing the company’s sensitivity to underwriting and investment shocks.

The negative outlooks reflect AM Best’s expectation that Oriental’s rating fundamentals may weaken further if the company is unable to stabilize its risk-adjusted capitalization and operating performance over the near term.

Moody’s upgrades Tritax Big Box REIT credit rating outlook to positive