The Credit Rating (rating) downgrades reflect United’s diminished risk-adjusted capitalization and its marginal enterprise risk management (ERM). The negative Long-Term ICR outlook reflects the downside risks to United’s risk-adjusted capitalization and operating performance.
The ratings reflect United’s balance sheet strength, which A.M. Best categorizes as strong, as well as its adequate operating performance, neutral business profile and marginal ERM.
United’s capital position has decreased to a lower-than-expected level of INR 90 billion (USD 1.4 billion) as of March 2018 (compared with INR 95 billion in the prior year). Subordinated debt of INR 9 billion helps to maintain United’s risk-adjusted capitalization at a strong level. However, the non-renewal of quota-share reinsurance for health and motor third-party business, as well as continued underwriting losses are expected to further reduce United’s capital position and risk-adjusted capitalization. Lastly, rising equity investment leverage is leaving the company’s risk-adjusted capitalization more vulnerable to equity market fluctuations.
The marginal ERM assessment reflects United’s inadequate capability to manage its reserves, as continued adverse developments have contributed to United’s capital erosion. Frequent changes in senior leadership raises the execution risk the company faces in implementing its turnaround strategy. It also raises concerns about the company’s ability to respond to challenges in India’s fast-growing non-life market in a timely and effective manner. Lastly, A.M. Best is concerned about United’s ability to provide timely and accurate information.
Further negative rating actions could occur if the company fails to maintain its risk-adjusted capitalization at a strong level due to adverse equity market movement or unfavorable reserve developments. Negative rating actions also could occur as a result of weakening operating performance.
http://mrem.bernama.com/viewsm.php?idm=32999
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