Mumbai, Mar 4: New India Assurance, the largest domestic general insurance company has been assigned an initial rating of `A' (excellent) by the international rating agency AM Best.This is for the first time that an international rating agency has rated a domestic state-owned insurance company.
The rating agency had interacted with the operating offices and a number of major clients of New India before assigning the rating.
The rating is of particular importance to New India for its 40 overseas operation.
The rating now places the company on par with some of the world's most respected and renowned insurance conglomerates and would offer better terms while dealing with reinsurers who basically prefer to deal with `A' rated companies.
However, the rating agency could not improve New India's rating to `A+'(superior) from `A' due to a few factors.
While the domestic tariff regime has guaranteed stability in pricing, it has limited controls over risk selection, The company operates a number of social-oriented schemes which are labour intensive and have little prospects of profitability, The increasing number of computer technology will help the company to become more efficient as a government organisation, staff redundancies are not an option. The rating agency believes that this will further compound staffing inefficiencies, The initial ratings are generally conservative and constrained by the sovereign rating of the country.AM Best while assigning `A' rating to the company has said that the company now carries more staff than would be required in a commercially oriented environment.
The agency further has said that the company has superior capital position, strong operating performance in recent years and strong market position in the domestic market. It has reported a strong solvency margin for the year ended March 31, 1998. Adjusting equities to the market valuations at the balance sheet date improves this ratio to the very strong solvency margin. This excludes an additional source of unrecognised capital from real estate, which represents a further very significant hidden asset.
Despite some volatility in the Indian equity market values of the company's investment have not fluctuated in the manner witnessed in a number of South East Asian territories over the past six months. Such is the strength of the adjusted solvency margin that the company can withstand a dramatic decline in the Indian equity market without any significant pressure on solvency.
The company has also recorded excellent underwriting results in the last five years. This includes combined ratio of 97 per cent thereby outperforming the Indian market as a whole. This combined ratio has averaged 101.7 per cent over the last five years and would have been lower but for legislative changes in 1994-95 requiring additional reserves for the third party motor liability.
It is the only company to develop any significant international operations and has long record-old successful trading outside of India, said the agency.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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