HONG KONG--(BUSINESS WIRE)--A.M. Best Asia-Pacific Limited has revised the outlook to positive from stable and affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb+”of The Oriental Insurance Company Limited (Oriental) (India).
The ratings reflect Oriental’s strong risk-adjusted capitalization and improving trend in its underwriting performance.
Oriental recorded a reported surplus of INR 104 billion as at March 31, 2013, which increased by approximately 5% over the previous year’s INR 99 billion. Oriental’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), remains solid and is adequate for its current rating level.
Oriental’s management is committed to improving its underwriting performance. Moreover, improvement in the profitability of its fire and engineering business has been made by providing a risk-based discount and evaluation of surveyors’ performance. Profitable segments in the company’s motor and health businesses have been identified, while unprofitable segments are written in a prudent manner with loss control measures in place. Oriental also has expanded its preferred provider network in order to reduce the outgo, and it avoids accepting policies at unviable rates for the health business. The overall loss ratio declined to 81.5% in fiscal year 2012-13 from 91% in fiscal year 2011-12. The improved loss ratio is lower than the industry average.
Offsetting these positive rating factors are the competitive non-life insurance market in India, Oriental’s high investment risk and the impact from India’s slowing economic growth.
Competition from both private and public insurers remains a challenge for Oriental to achieve satisfactory underwriting results. In the past three fiscal years, Oriental’s domestic market share decreased and its combined ratio stayed above 110%.
Despite Oriental’s consistent and favorable track record of investment returns, Oriental is subject to high investment risk predominantly due to a high proportion of investments in equity securities. As of March 2013, the market value of Oriental’s equity investments was INR 100 billion. It is equivalent to nearly half of its total assets, which is INR 218 billion. Extreme investment market conditions can have a material impact on Oriental’s risk-adjusted capitalization.
Future upward rating actions could occur if Oriental continues to strengthen its capitalization and shows significant improvement in its underwriting performance. Conversely, downward rating actions could occur if the company’s risk-adjusted capitalization declines to a level below A.M. Best’s expectations.
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.
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.
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