ICRA reaffirms the iAAA rating for claims paying ability of Bajaj Allianz General Insurance Company Limited
RATING HISTORY Maturity Date Rating Outstanding Previous Ratings - April 2010 Nov. 2008 Mar 2006 Claims Paying Ability - iAAA iAAA iAAA
Tweet-- ICRA's has reaffirmed iAAA (pronounced as I triple A) rating, indicates highest claims paying ability to Bajaj Allianz General Insurance Company Limited (BJAZ). The rating indicates the fundamentally strong position of BJAZ and that its prospects of meeting policyholder obligations are among the best. The rating takes into account BJAZ's strong parentage, its strong position amongst private sector general insurers in India, balanced and diversified portfolio, prudent underwriting practice and reinsurance strategy and satisfactory overall long term performance. Despite the favorable long-term growth prospects, the Indian general insurance industry has a challenging and rapidly evolving operating environment with respect to price and product de-tariffing and entry of several new players. Nevertheless, BJAZ's focus on achieving underwriting profitability and competitive cost structure places it in a favorable position to compete in the challenging environment. Further, demonstrated strong support from its promoters, Bajaj Finserv and Allianz, in the form of capital infusion, reinsurance strategy, systems and procedures provides strong cushion.
During 2008-09 and 9M 2009-10, the general insurance industry achieved a gross direct premium written (GPW) of Rs. 306 billion and Rs. 252 billion, respectively, indicating growth of 8.8% and 9.9% over the corresponding periods in the previous year. A significant part of this growth has been captured by the private sector, whose market share has increased to around 40.6% during 9M 2009-10 from 39.9% in 2007-08. Post de-tariffing of Fire, Engineering and Motor OD portfolio BJAZ market share has dropped from a high of 8.6% in 2008-2009 to 7.2% during 9M 2009-10. This has been primarily on account of competition from new players, deep discounting for Fire and Motor OD portfolio leading to premium decline. BJAZ with a focused approach towards underwriting risk, declined several under-priced risks during the period as well. However it continues to have a strong position in the Indian General Insurance market as the second largest private sector player and enjoys strong market position and brand recall.
BJAZ's distribution network is diversified with a mix of agents, bancassurance, brokers and alternate channels such as online, and tele-calling. Agency channel contributes 57% of the revenues with individual agents contributing 31% and Motor dealers contributing 25%. Another significant source of revenue is bancassurance which contributes 18% to the top line. BJAZ is also investing in robust e-commerce efforts that focus on the convenience of the customer through self-service. Overall, its diversified distribution strategy and economies of scale arising from size advantage have enabled its competitive expense and commission ratio at 33% (2008-09) of Net Premium earned (NPE) compared to other players.
BJAZ's product mix is healthy, with more than 70% coming from retail lines (primarily Motor and Health) and the rest from corporate lines. In line with company's focus, the business mix has shifted towards retail lines, which are expected to drive future growth as well. BJAZ enjoyed good growth rates for its health portfolio leading to increasing share of health portfolio in FY09 to 13% compared to 10% in FY08. Its Motor portfolio continues to dominate with 58% of the premium generation in FY09 compared to 42% in FY06. The increase is attributed to declining share of Fire and Engineering premiums over the last three years which has led to low base. Second, due to compulsory sharing of Motor TP pool losses the company has ramped up its Motor TP premiums from Rs 1.7 billion in FY07 to Rs. 4.4 billion in FY09. Going forward the Fire and Engineering premiums are likely to remain subdued with price based competition in the near term.
BJAZ has posted one of the most consistent underwriting performances among private and public sector players owing to tight underwriting discipline and management philosophy of striving for underwriting profits. BJAZ's claims ratio at 72% in FY 2009 is one of the best in the Industry. Together with the fact that its expense structure is also competitive it led to combined ratio of 105% in FY09. During the period 9M 2009-10 the company has implemented cost cutting measures which has led to decline in management expenses from Rs. 4.1 billion during 9M 2008-09 to Rs. 3.9 billion during 9M 2009-10. Overall the company incurred underwriting losses of Rs. 0.95 billion and Rs. 0.45 billion during FY09 and 9M 2009-10 respectively, which compares favourably with its peers.
BJAZ's reinsurance programme is adequate; broad based and has a mix of proportional and non-proportional treaty with significant dependence on Allianz, which is the lead insurer. BJAZ's has automatic capacity to underwrite Fire risks worth Rs. 9 billion (approx.) at 50% PML (probability of maximum loss) providing more than adequate margin of safety (compared to industry wide accepted 30%PML). BJAZ's lead insurer is Allianz followed by G.I.C. and has all re-insurers with sound financial strength. The company's retention at 76.6% in FY09 increased from 58.2% in FY07 due to drop in fire and Engineering premiums and promoter's strategy to retain a larger part of business. BJAZ's Fire retention per risks at 3.7% of net worth is in line with international norms. In order to cover catastrophic risks the company has taken CAT XL policy based on risk modeling of one event in 250 years for a cover of upto Rs. 9 billion. Going forward, given the increase in claims for Fire and Engineering portfolio and various catastrophes both globally and locally the reinsurance rates are expected to harden which can adversely affect insurer's profitability.
The investment portfolio of BJAZ is robust with investments primarily made in Sovereign securities, AAA/AA rated bonds and Fixed deposits. Historically BJAZ had kept low exposure to equity investments and recently has completely exited from equity as an investments class. Overall the investment portfolio has low credit risk and market risk. BJAZ has been maintaining IRDA mandated solvency margins. As on March and December 2009 it solvency ratio stood at 1.6x and 2.2x respectively and is adequately capitalised.
Notes to Editor
Company Profile
Bajaj Allianz General Insurance Company Limited (BJAZ) is a joint venture between Bajaj Finserv Limited and Allianz SE, with the former presently holding 74% of the paid up capital of Rs 110 Crores. While Bajaj group is a major player in the domestic two wheeler industry, the Allianz group is one of the strongest players in the global insurance industry, with an established presence in the property and casualty (P&C), life and reinsurance businesses. Allianz SE presently carries an Aa3 (stable) rating from Moody's for sr. unsecured debt and insurance financial strength. . For the period 2008-09 and 9M 2009-10 the company reported a gross premium of Rs. 26.2 billion and Rs. 17.8 billion respectively and PAT of 0.95 billion and 0.82 billion respectively.
Key Financials (Rs. billion):
31.03.2009
31.03.2008
31.03.2007
31.03.2006
Gross Direct Premium
26.2
23.8
17.9
12.7
Net Premium Written
20.1
17.5
10.4
7.0
Net Premium Earned
18.9
14.2
8.4
5.9
Underwriting profit
(0.9)
(0.3)
0.2
0.3
Profit After Tax
1.0
1.1
0.8
0.5
Equity
1.1
1.1
1.1
1.1
Net worth
6.7
5.7
4.1
2.8
Technical Reserves
21.7
16.4
9.7
6.3
Investments
21.9
18.6
13.0
7.6
Cash & Bank balance
2.8
2.7
2.2
1.0
Return on net worth
14%
18%
18%
19%
Retention
77%
74%
58%
55%
Net Claims Ratio
72%
67%
66%
69%
Combined Ratio (Net claims Incurred + operating Expenses)/(Net Prem. Earned)
105%
102%
98%
95%
Operating leverage (Net Premium Earned /Net worth)
281%
247%
204%
213%
Financial leverage (Technical reserves /Net worth)
323%
285%
236%
228%
