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Crisil affirms Oriental Insurance's rating; says company targets 5-10% growth

04:27 PM May 29, 2021 | IANS

Credit rating agency CRISIL Ratings Ltd affirming AAA/Stable rating for Oriental Insurance Company Ltd's Rs.750 crore subordinated debt said the insurer plans to grow at 5-10 per cent this fiscal.

The rating agency said the insurer is predicting the growth over the near to medium term on the premise that the second wave of the pandemic should tail out by the end of Q1 2022.

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The business growth will be driven by motor, health and fire segments. Oriental also plans to run down its loss making crop portfolio to about 10 percent of the total premium base, CRISIL said.

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The rating agency also reaffirmed the insurer's corporate credit rating at AAA/Stable.

According to CRISIL, the rating on the hybrid instrument is centrally based on forbearance granted by Insurance Regulatory and Development Authority of India (IRDAI) to Oriental Insurance from adhering to provisions 3(vii) and 5(vii) of Insurance Regulatory and Development Authority of India (Other Forms of Capital) Regulations, 2015, for this specific subordinated debt issue of Rs. 750 crore.

The forbearance allows the company to service the interest or coupon payments to the investors in the issue throughout the life of the instrument, irrespective of solvency ratio.

IRDAI has also granted forbearance against provision 14 of the regulation and has allowed the company to issue subordinated debt to the extent of 25 per cent of its net worth as on September 30, 2018, CRISIL said.

At a time when the central government is mulling to divest its stake in one of its three non-life insurance companies that includes Oriental Insurance, CRISIL said its ratings reflect the company's strategic importance to, and expectation of strong support from, the Government of India (GoI), in addition to its established market position in the Indian general insurance industry.

The rating agency also added that it is monitoring the developments relating to privatisation plans of the central government.

CRISIL said the insurer's strengths are partially offset by the low cushion in solvency ratio and capitalisation remaining dependent on equity infusion by the government.

The company's underwriting performance remains modest, imposing pressure on overall profitability and solvency.

Last fiscal Oriental Insurance had settled about Rs.609 crore of COVID-19 claims. However, claims for non-COVID illnesses/ casualties were lower during the year, CRISIL said.

Owing to restricted public activity last fiscal, claims were lower in other segments.

For nine months ended December 31, 2020, the company reported an underwriting deficit of Rs 2,366 crore, which led to an overall loss of Rs 758 crore for the period. This modesty in earnings profile was partly offset by Rs 1,737 crore of investment income earned during the first nine months of fiscal 2021, said CRISIL.

According to the rating agency, for FY22 the growth in new business in segments like motor could be muted as new sales volumes in the auto sector will happen only at a gradual pace once the lockdowns across states are lifted.

Renewal premiums from the retail segment could also be impacted on account of job losses and pay-cuts.

For the health segment - which is the second largest after motor, growth prospects will remain strong driven by increased market awareness and demand for multiple covers.

In a scenario where pricing for COVID-19 policies is revised upwards, growth in this segment could be higher than that of last fiscal.

However, with increasing ticket size of COVID-19 claims, the impact of actual losses borne by the insurers after the second wave - on their underwriting performance and capital and solvency position, remains to be seen, CRISIL said.

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