A.M. Best Affirms Ratings of The Oriental Insurance Company Limited

HONG KONG--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating (FSR) of B++ (Good) and the issuer credit rating (ICR) of “bbb+” of The Oriental Insurance Company Limited (Oriental) (India). The outlook for the FSR is stable, and the outlook for the ICR is negative.

“Understanding Universal BCAR – A.M. Best’s Capital Adequacy Ratio for Insurers”

The ratings reflect Oriental’s strong presence in the Indian insurance market, its strengthened underwriting processes and improved capitalization level.

As a public sector undertaking, Oriental has a strong presence in the Indian insurance market. Amidst strong competition, the company has generated premium growth far in excess of the market average growth. In terms of direct premiums written, Oriental has maintained its position as one of the top four general insurers, with a market share of 13.6% in fiscal year 2009-10. Nonetheless, A.M. Best remains cautious of the sustainability and viability of the company’s rapid premium growth.

Oriental has continually taken measures to strengthen its underwriting procedures, and this process has been enhanced with changes in regulations whereby the company is able to vary deductibles and write policies with clauses in addition to the current prescribed wording. Going forward, with the maturing of competition in the market, A.M. Best anticipates that Oriental will move toward a more risk-based pricing approach.

Oriental’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), strengthened in fiscal year 2009-10 primarily as a result of the company’s surging stock index.

Offsetting factors include the company’s exposure to investment risk, poor underwriting results and intense market competition.

As of fiscal year 2009-10, Oriental invested over 60% of its total investments (market value basis) in the Indian equity market. This high weighting in equities heavily impacts the company's risk-based capitalization and was the reason for the steep decline of its risk-adjusted capitalization in fiscal year 2008-09.

Oriental’s underwriting performance, with a combined ratio of 125.9% in fiscal year 2009-10, is considered high. Expenses and losses are not expected to decline drastically in the short term, and hence, the company’s overall profitability continues to be dependent on investment income.

The influx of competitors since the liberalization of the Indian insurance market in 1999 has increasingly exerted pressure on the market share of public sector insurers. Premium rates in certain lines have seen corrections; however, price continues to be the determining factor in competing, as witnessed by the ever high loss ratios.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology - Global Life and Non-Life Insurance Edition,which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Understanding BCAR for Property/Casualty Insurers”; “Assessing Country Risk”; and “Understanding Universal BCAR – A.M. Best’s Capital Adequacy Ratio for Insurers”. Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.