Ratings Roundup: New India Assurance, South China Insurance

A.M. Best Asia-Pacific Limited has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of The New India Assurance Company Limited, both with stable outlooks. The ratings reflect New India’s “strong risk-adjusted capitalization, improved underwriting performance and its prominent business profile in the Indian insurance market,” Best explained. “New India’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), remained strong in fiscal year 2011-2012, which is attributable to New India’s initiative to improve its underwriting results. The company’s capital and surplus stood solid at INR 232 billion [$4.304 billion] in fiscal year 2011-2012. New India’s business profile remains strong. The company continues to demonstrate its competence to maintain its leading business position in the domestic market, as well as its ability to enlarge its overseas business. Market share of New India, as measured by its gross written premiums in the Indian non-life insurance market, was 16 percent in fiscal year 2011-2012. New India continues to lead in generating fire, marine and health insurance business, resulting in a growth of total gross premiums written of 26 percent for the 12 months to March 2012. Both New India’s underwriting performance and its loss ratio improved in fiscal year 2011-2012, with the loss ratio improving to 91 percent from 101 percent in fiscal 2010-2011. These improvements are a result of the company’s corrected pricing and revised policy terms through coordination with other major players on pricing controls for large group policies. Overall, New India’s combined ratio was lowered by 13 percent to 125 percent in fiscal year 2011-2012.” As offsetting factors Best cited “the competitive non-life insurance market in India, New India’s high investment risk and the impact from India’s slowing economic growth.” The report explained that “New India is under pressure from other government-owned and private competitors with regard to market share, which saw a decline to 16 percent in fiscal year 2011-2012 from its peak of 20 percent in 2006-2007. New India relies heavily on investment income to generate profit. The company is highly exposed to the equity market, with approximately half of its invested assets on a market value basis held in equities. Despite a slight increase in bond investments in the past year, adverse market movement will contribute to a volatile risk-adjusted capitalization.” Best said: “Negative rating actions could occur if there is a significant deterioration in New India’s operating results or the company’s risk-adjusted capitalization declines to a level below A.M. Best’s expectations.”

A.M. Best Asia-Pacific Limited has affirmed the financial strength rating of ‘A’- (Excellent) and issuer credit rating of “a-” of Taiwan’s South China Insurance Co., Ltd., both with stable outlooks. The rating affirmations reflect South China Insurance’s “sound risk-adjusted capitalization, strong operating performance and continued improvement in its market presence in Taiwan,” Best explained. “The company has increased its capital and surplus position through consistently favorable underwriting results and the recovery of investment losses in prior years. With management’s continuous efforts to enhance the quality and efficiency of its distribution channels, South China Insurance increased its market share to 5.6 percent for the first eleven months in 2012, from 4.7 percent in 2007 in terms of direct premium written.” Best also pointed out that South China Insurance “benefits from its product distribution and risk management as a wholly owned non-life insurance arm of Hua Nan Financial Holdings Co. Ltd.,” one of the “leading financial conglomerates in the banking (wholly owned Hua Nan Commercial Bank), asset management and other financial services business in Taiwan.” As partial offsetting factors, Best cited “South China Insurance’s historical earnings volatility arising from investment and weather-related losses and a high dividend payout, which has impeded the company from further strengthening its risk-adjusted capitalization. Moreover, the sustainability of business growth and underwriting profitability remains challenged under the continuing competitive market and pricing conditions in Taiwan.” Best said: “Future positive rating actions could occur if South China Insurance can demonstrate significant improvement in its market profile with quality business and a sustainable favorable trend in its operating performance. Alternatively, downward rating actions could occur if the company’s risk-adjusted capitalization materially deteriorates or exhibits a downward trend in underwriting or operating profitability.”