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A.M. Best Affirms Ratings of The Oriental Insurance Company Limited
(BestWire Services Via Acquire Media NewsEdge) A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and the issuer credit rating (ICR) of ?bbb+? of The Oriental Insurance Company Limited (Oriental) (India). The outlook for both ratings is stable.
The ratings reflect Oriental?s strong capitalization level, strong market presence in the insurance market in India and positive impact of newly implemented third party motor pools in India.
Oriental?s risk-adjusted capitalization, as measured by Best?s Capital Adequacy Ratio, remained strong in fiscal year 2007-2008. However, the company?s risk-adjusted capitalization is highly exposed to the Indian equity market, given over 60% of its invested assets are in Indian equities.
A pool for third party (TP) liability business of commercial vehicles was set up in fiscal year 2007-2008. All general insurance companies in India are required to share the business from the pool with respect to their overall market share. The TP liability business of commercial vehicles was a loss making line of business in the past and contributed to a large portion of Oriental?s gross premiums written (GPW). The premium rate of this business also increased on average of 70% in fiscal year 2007-2008. A.M. Best believes that Oriental will benefit from this new arrangement as the losses from the pool will be shared among all the general insurance companies in India, whereas the private companies had relatively small market share in this line of business in prior years.
Oriental has a strong presence in the Indian insurance market. In terms of GPW, the company has maintained its position as one of the top four general insurers, with a market share of 14% in fiscal year 2007-2008.
Offsetting factors include high investment risk, poor underwriting results and intense market competition.
As of fiscal year 2007-2008, Oriental invested over 60% of its total investments on a market value basis in the Indian equity market. This high equity risk weighs heavily on the company?s risk-based capitalization. The downward trend in the Indian equity market in 2008 has exerted pressure on its risk-adjusted capitalization level.
Oriental?s underwriting performance, with a combined ratio of 124% in fiscal year 2007-2008, is still considered high. The company?s overall profitability continued to rely on the investment income, however, which highly depends on the performance of the Indian equity market.
Since the liberalization in 1999, the insurance market in India has been very competitive. The market share of private companies in terms of direct premiums written was approximately 40% as of March 31, 2008. It will be a challenge for Oriental to maintain its market share in this competitive market environment.
Copyright ? 2008 A.M. Best Company, Inc.
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