SINGAPORE: New India Assurance, having ultimate majority ownership by the Government of India, is exposed to high market risk arising from a notable allocation to domestic equity investments, with market value fluctuations amid the COVID-19 pandemic.

It has resulted in elevated volatility in the company’s reported shareholders’ equity in recent years.

New India Assurance is also subject to moderate reserving risk due to its exposure to long-tail motor third-party liability insurance business in India.

AM Best rating agency has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb+” (Good) of The New India Assurance Company Limited with stable outlook.

The ratings reflect New India’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, favourable business profile and marginal enterprise risk management (ERM). The ratings also factor in a neutral impact from the company’s ultimate majority ownership by the Government of India.

New India’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, which remained at the strongest level in fiscal year 2021, as measured by Best’s Capital Adequacy Ratio (BCAR).

In addition, a large absolute capital base of INR 376.8 billion (USD 5.1 billion) at the end of fiscal year 2021 continues to enable the company to provide significant underwriting capacity and insure large risks domestically and overseas.

The company’s operating performance is assessed as adequate. New India has reported positive operating results over the past five years, with an average return-on-equity ratio of 3.9% (fiscal years 2017–2021).

However, underwriting losses have remained persistent and significant in size as a result of stiff market competition in many lines of business in India and restrictive tariff rates for motor third-party liability insurance.

Investment income, including interest and dividend income, as well as realised gains from the sale of equity investments, has been crucial in offsetting underwriting losses, which has enabled the company to report positive earnings over the past five years.

In the near-to-medium term, AM Best expects the ongoing COVID-19 pandemic and challenging market conditions to continue to pressure the company’s underwriting and investment activities, albeit overall operating results are expected to remain profitable.

New India’s favourable business profile assessment reflects its market position as the largest non-life insurer in India in terms of gross premiums written, capital size and total assets in fiscal year 2021. Its underwriting portfolio is considered to be well-diversified by line of business, distribution channels and geographically.

In addition, the company is the only direct insurer in India with considerable overseas operations, which provide a level of diversification to its domestic portfolio. While the domestic market continues to present significant growth opportunities for New India, intense competition in the largest lines of motor and health business continue to drive premium rate inadequacies and pressure underwriting margins.

The company’s ERM is assessed as marginal with the profile of some key risks viewed to exceed the associated risk management capabilities.

The company’s audited financial statements have been qualified for several years as a result of internal control weakness in the reconciliation of certain items and accounts. While significant progress has been made by the company in fiscal year 2021 to reduce the number of items leading to the qualified audit opinions, some unresolved matters remain.

AM Best notes that the company is in the process of further strengthening its internal controls and audit, specifically in the area of data input and validation.

Whilst New India Assurance continues to take actions aimed at strengthening its ERM, there remains a gap between the company’s ERM framework and the global standards for an organisation of its scale.