2013-10-18 20:01:03 -
A.M. Best Asia-Pacific Limited has affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb+” of United India Insurance Company Limited (United India) (India). The outlook for both ratings is positive.
The ratings reflect United India’s solid risk-adjusted capitalization, improved operating performance and strong market profile.
United India’s risk-adjusted capitalization level, as measured by Best’s Capital Adequacy Ratio (BCAR), remains solid and supportive of its ratings. The company’s prospective level of capital and surplus is expected to be sufficient to support its projected growth in premium income.
United India posted a 36% higher bottom line in fiscal year 2012-13, which was a result of its enhanced underwriting and investment performance. Loss experience has further improved. Although United India’s operating
expenses increased due to additional employee pension liabilities, it was still able to achieve a slight improvement in its combined ratio. The investment portfolio has been an important source to United India’s bottom line. The company was able to demonstrate robust investment results every year in the past five years, even during the global financial crisis, as demonstrated by a five-year average investment income ratio of 18% and average investment yield (including gain) of 10%.
Despite the intensive market competition, United India maintained strong top line growth over the past five years. The company has managed to gradually increase its market share and has become the second-largest non-life insurance company in India in terms of gross direct premium written.
Offsetting these positive rating factors are United India’s unsatisfactory underwriting results and high market risk from its equity exposure.
Although gradual improvement was observed in United India’s underwriting performance in the past five years, the company still recorded underwriting losses every year during that period. The unfavorable result from the third-party motor and health portfolios is the main reason for the deficit. However, with the introduction of the new third-party motor declined risk pool and the various initiatives implemented on the health business, overall underwriting performance is forecasted to further improve in the next three years.
United India has substantially reduced its equity exposure over the years. However, the company still had approximately 35% of its investments (excluding cash) in equities as at March 31, 2013, and these equities are exposed to local stock market volatility. Deterioration of the Indian investment market climate could have a direct negative impact on United India’s capitalization level through the fair value change account.
Future positive rating actions could occur if United India is able to further improve its underwriting performance while maintaining its solid risk-based capitalization. Conversely, downward rating actions could occur if there is a significant deterioration in the company’s operating results or a material decline in its risk-based capitalization.
The methodology used in determining these interactive 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. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww ..
Ratings are communicated to rated entities prior to publication, and unless stated otherwise, the ratings were not amended subsequent to that communication.
A.M. Best Asia-Pacific Limited is a subsidiary of A.M. Best Company. A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww ..
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