SINGAPORE--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb-” of The Oriental Insurance Company Limited (Oriental) (India). The outlook of these Credit Ratings (ratings) remains negative. Concurrently, AM Best has withdrawn these ratings as the company has requested to no longer participate in AM Best’s interactive rating process.
The ratings reflect Oriental’s balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, neutral business profile and marginal enterprise risk management. The ratings also factor in a neutral impact from the company’s ultimate ownership by the Government of India.
Oriental’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), has exhibited a deteriorating trend over recent years, although it remained at the strongest level for fiscal year-end 2019 (FY 2019). This trend has been driven in part by notable reserve strengthening requirements and elevated new business growth, which have resulted in increased underwriting leverage over recent years. Furthermore, post-tax operating losses and unfavorable fair value movements from equity investments recorded directly in the balance sheet have eroded the company’s capital position. Oriental’s capital and surplus fell by 11% to INR 104 billion (USD 1.5 billion) in FY 2019, as compared with FY 2018. During the first nine months of FY 2020, the company’s capital and surplus declined further to INR 76 billion (USD 1.1 billion).
AM Best views Oriental’s operating performance as marginal. The company’s five-year average loss ratio (FY 2015-2019) is 95%, and its combined ratio is 132%. In FY 2019, the company recorded a sizable underwriting loss of INR 38 billion (USD 549 million), as a result of reserve strengthening from motor third-party business and a deterioration in the performance of its health portfolio. Investment income, including realized gains from the sale of equities, was insufficient to offset the weak technical performance, resulting in an operating loss after tax of INR 2.9 billion (USD 42 million). For the first nine months of FY 2020, the company continued to exhibit poor technical performance with an overall operating loss after tax of INR 3.9 billion (USD 54 million).
AM Best notes that the Government of India continues to embark upon a plan aimed at restructuring state-owned general insurance companies, including Oriental. At this stage, AM Best has insufficient detail on these planned actions to be able to incorporate this into its rating assessment of Oriental.
The negative outlooks reflect AM Best’s expectation of continued pressure on Oriental’s balance sheet strength and operating performance fundamentals over the near term.
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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