CONTACTS:
FOR IMMEDIATE RELEASE
SINGAPORE - AUGUST 28, 2019 09:20 AM (EDT)
AM Best has removed from under review with negative implications and downgraded the Financial Strength Rating to C (Weak) from C++ (Marginal) and the Long-Term Issuer Credit Rating to “ccc” from “b” of National Insurance Company Limited (National) (India). The outlook assigned to these Credit Ratings (ratings) is negative.
The ratings reflect National’s balance sheet strength, which AM Best categorizes as weak, as well as its marginal operating performance, neutral business profile and weak enterprise risk management.
The rating downgrades reflect a deterioration in National’s balance sheet strength fundamentals. The company’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), deteriorated to a very weak level at fiscal year-end 2019 due to a combination of significant reserve strengthening for motor third-party liability business and continued large underwriting losses from several other product lines. Capital and surplus declined significantly by 51% to INR 28 billion (USD 401 million) as of March 31, 2019, from INR 57 billion (USD 880 million) in the same prior-year period. Furthermore, the company’s net underwriting leverage and equity investment leverage has surged to a very unhealthy level at 1,091% and 385%, respectively.
As of fiscal year-end 2019, the company’s local solvency margin reduced to 1.04 times, which is significantly below the regulatory control level minimum requirement (1.5 times), despite the company receiving favorable treatments from the regulator on certain investment assets to alleviate pressures on capital adequacy. Furthermore, while the company’s capital position has continued to deteriorate, the previously anticipated capital support from the Government of India has yet to materialize, and there is limited visibility on the progress of this capital injection plan.
AM Best views the company’s operating performance as marginal, as evidenced by a five-year average return-on-equity ratio of -6.7% (2015-2019). Underwriting performance has been persistently loss-making, with a five-year average combined ratio of 134.7% (2015-2019) and a very weak combined ratio of 142.8% for fiscal-year 2019. Operating results have been dependent on investment income in recent years, which includes material realized and unrealized gains. Inadequate pricing on key lines of business and reserve strengthening over the past three fiscal years have been the primary drivers of the company’s poor underwriting results.
The negative rating outlooks reflect the potential for further deterioration in National’s balance sheet strength fundamentals over the near to medium term if the current trends in financial metrics are not reversed, or sufficient capital is not received from the Government of India.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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