SINGAPORE–(BUSINESS WIRE)–AM Best has downgraded the Financial Strength Rating (FSR) to C+ (Marginal) from C++ (Marginal) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “b-” from “b+” for United India Insurance Company Limited (United India). The outlook of the FSR has been revised to negative from stable while the outlook of the Long-Term ICR is negative. Concurrently, these Credit Ratings (ratings) have been withdrawn at the company’s request to no longer participate in AM Best’s interactive rating process.
The ratings reflect the company’s balance sheet strength, which AM Best categorises as weak, marginal operating performance, neutral business profile and marginal enterprise risk management.
The rating downgrades reflect a downward revision in AM Best’s balance sheet strength assessment for United India to weak from adequate, driven by a decline in risk-adjusted capitalisation as of December 2019 and the expectation of a further material deterioration at fiscal-year end 2020. AM Best expects the company’s balance sheet strength fundamentals to weaken considerably at fiscal year-end 2020, as continuously weak operating results and mark-to-market losses from the company’s common equities investments are expected to drive a significant decline in shareholder equity. As a result of the aforementioned, the company’s risk-adjusted capitalisation, as measured by the Best’s Capital Adequacy Ratio (BCAR), is projected to decline to a very weak level at fiscal year-end 2020. In addition, as of December 2019, the company’s regulatory solvency margin declined to 0.94 times, which is below the regulatory minimum requirement of 1.5 times.
United India’s financial results for the year ended 31 March 2020 are not yet available, given the regulator’s extension for statutory returns in light of operational challenges brought on by the COVID-19 pandemic. Over the near term, United India’s balance sheet strength position, including its risk-adjusted capitalisation, remains highly reliant on the timing and magnitude of capital support recently announced by India’s government. The company received formal communication from India’s government for a capital infusion of INR 10.8 billion (USD 144 million) in the near term, but full details of further capital infusion are unavailable.
The negative rating outlooks reflect the potential for further deterioration in the company’s risk-adjusted capitalisation over the near to medium term due to a volatility of operating performance, or if sufficient capital support is not received from India’s government in a timely manner.
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