SINGAPORE--(BUSINESS WIRE)--A.M. Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb+” of National Insurance Company Limited (NIC) (India) (National Insurance). The outlook of the FSR remains stable.
The Long-Term ICR’s revised outlook is due to the downward trend in National Insurance’s profitability over the past 24 months. Due to increasing underwriting losses, the company’s pretax margin has continued to decline since 2015. As a result, growth in net premium has outpaced retained earnings and contributed to a decline in National Insurance’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). In addition, the company’s capital structure includes a high proportion of fair value reserves, which leaves its risk-adjusted capitalization vulnerable to capital market volatility.
Partially offsetting these negative rating factors are the steps that National Insurance’s new leadership has taken to improve the company’s underwriting performance, especially in its health and motor businesses. As of December 2016, financial results showed stabilizing pretax margins, although they remained far below prior levels.
Further negative action could occur if improvement in underwriting does not materialize, resulting in a continued decline in National Insurance’s risk-adjusted capitalization.
A revision to a stable outlook could occur if the company can show a sustained improvement in underwriting performance while keeping its risk-adjusted capitalization at a strong level.
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