A.M. Best Affirms Ratings of The New India Assurance Company Limited [Manufacturing Close - Up]

Proquest LLC

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 (New India) (India).

The outlook for both ratings is stable.

The ratings reflect New India's strong risk-adjusted capitalization, improved underwriting performance and its prominent business profile in the Indian insurance market.

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 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.

Offsetting rating factors are the competitive non-life insurance market in India, New India's high investment risk and the impact from India's slowing economic growth.

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.

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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.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Evaluating Country Risk"; "Catastrophe Analysis in A.M. Best Ratings"; and "Understanding Universal BCAR." Best's Credit Rating Methodology can be found at www.ambest.com/ ratings/methodology.

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