Amidst weakening macroeconomic fundamentals, JCR-VIS Credit Rating Company Ltd believes that there is significant stress on the general insurance sector, as reflected in performance of both the underwriting and investment management functions.
The insurance sector is one of the key pillars of an economy with growth trends in premium and investment avenues reliant upon gross domestic product (GDP) growth and state of capital markets. The private sector insurance companies incurred aggregate underwriting loss of Rs 1.3 billion in 2007 - an outcome of political and social unrest in the country towards the end of FY07.
The aftermath of this was also felt during the ongoing year with net claims ratio continuing to be high across key business segments. Payments in lieu of claims resulted in large cash outflows, and the resulting pressures on liquidity were further compounded by rising level of insurance debt.
Profitability has traditionally received considerable support from the investment management function, particularly amongst the larger players in the industry. JCR-VIS is in the process of reviewing the IFS ratings of the entire general insurance sector. Although the impact of macroeconomic shocks will vary across the sector, ratings will take into account the systemic risk impacting the sector as a whole, while also continuing to be driven by intrinsic fundamentals of individual companies.-PR
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