A.M. Best Affirms Rating for New India Assurance.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--May 8, 2001

A.M. Best Co. has affirmed the financial strength rating of A (Excellent) for The New India Assurance Co. Ltd., India.

The affirmation of the rating is based on the company's continued superior capital position, historically strong operating performance and leading position in the domestic Indian insurance market. New India's diversified portfolio further supports the affirmation. Offsetting factors include increased competition that the company will experience as foreign insurers are authorised to write business in the market. Also, uncertainties surrounding the economic development of the country may constrain and even provide obstacles to the liberalisation of insurance and other industries in the near to medium term.

New India reported an excellent solvency level (net premium written to policyholders' surplus) of 0.8 in the period ending March 31, 2000. This level has consistently strengthened over the past three years. In the opinion of A.M. Best, this provides the company with sufficient scope and capacity to expand its book of business either domestically or internationally. It should be noted that solvency is based on a cost valuation of assets; therefore, an adjustment to market values further improves this measure.

Most recently, the company continued to report a good operating performance, albeit a deterioration over prior years. Revenues increased, commission payments were lower and investment returns were in line with the solid levels achieved in the past. However, the company was exposed to a higher level of third party motor liability claims, a market-wide phenomenon and 16% higher underwriting expenses. As a consequence in 2000, New India reported its highest operating ratios in the period under review. Expenses were 24.9% and losses were 81.8%, for a combined total of 106.7%. The underwriting performance, operating results and net income deteriorated when compared with the levels achieved in 1998 and 1999.

New India has a leading market position, and at the end of 2000, it had a market share of 32%. The company's diversified portfolio--in terms of business class and geographic location--affords support to this position. Moreover, along with other domestic non-life companies, New India benefits from tariffs applied to the majority of business classes. While these tariffs may often be superior to international pricing levels, they do not necessarily provide adequate pricing.

Offsetting factors include increased competition that domestic companies will experience as foreign insurers are authorised to write business in the market. A number of these international operations have had a presence in India for many years and are familiar with the challenges that exist. Their product ranges, distribution arrangements and strategy may also benefit from their experiences in other developing or liberalising markets. During 2000, a number of foreign insurers were authorised to write business through joint ventures in the Indian market, making the demand for further licences high. In addition, international operations do not generally have a history of state control. Nonetheless, mitigating these pressures to some extent are the strong market positions and long-standing, well-established client relationships that exist with the domestic companies.

The uncertainties surrounding the economic development of the country may constrain and be an obstacle to the liberalisation of insurance and other industries in the short to medium term. While the economy has been growing in recent years, A.M. Best has concerns about the fiscal deficit, interest rates and level of unemployment. All of these factors could have an impact on the insurance market.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.