Best Lowers New India Ratings

A.M. Best Co. has downgraded the financial strength rating to “A”- (Excellent) from “A” (Excellent) and the issuer credit rating to “a-” from “a” of The New India Assurance Company Limited, and revised its rating outlook from stable to negative.

“The ratings of New India reflect its consistently high loss and expense ratios and its consequent heavy reliance on investment returns to generate profits; its strong business profile (which is also under competitive pressure); and its strong—though highly exposed to the Indian equity market—risk-adjusted capitalization,” said Best.

Best said it “believes that New India’s overall combined ratio is likely to remain very high despite the expected positive impact from the creation of the motor third party liability pool in January 2007 (New India posted a combined ratio of 126.9 percent at year-end March 2006). Therefore, overall projected earnings of approximately INR 3-5 billion (USD 50-70 million) are expected to remain solely reliant on the very good projected net investment returns of approximately 6 percent, predominantly from New India’s investments in the domestic equities.”

The rating agency also indicated that in its opinion, “New India’s business profile remains strong, with the company maintaining its leading business position in the domestic market. However, competitive pressures from the other government-owned and private insurers are increasing, with New India already growing at slower rates than the market in the financial year ending March 2006 (16.5 percent compared to 23.4 percent).”

Best said it “believes that New India’s strong risk-based capital position will remain under pressure due to the significant exposure of its investments in the domestic equity market (54 percent in March 2006).”