New India Assurance, a state-owned insurance company, has been designated as a “Domestic Systemically Important Insurer” (D-SII) by regulators for the fourth consecutive year. This designation recognizes the company’s significant role in India’s financial system and its potential to cause widespread impact if it were to experience financial difficulties. New India Assurance is one of the largest insurers in India, providing coverage for a wide range of risks, including government hospitals, oil rigs, rural crops, and industrial accidents.
However, despite its importance, the company has been operating with a combined ratio of 117% since 2015, meaning that for every Rs 100 it earns in premiums, it spends Rs 117 on claims and expenses. This is a concerning trend, as a sustained combined ratio above 100% indicates that the company is not generating sufficient revenue from underwriting to cover its expenses. While the company does generate investment income, which helps to offset some of the losses, its chronic underpricing of risk has led to significant financial leaks.
The company’s financial performance is not unique among public-sector insurers in India. United India Insurance, for example, has a 10-year average combined ratio of 129%, indicating even more severe financial challenges. The Insurance Regulatory and Development Authority (Irdai) has designated New India Assurance as a D-SII due to its scale and systemic exposure, rather than its financial performance. This designation is a recognition of the company’s importance in the Indian financial system, rather than a reward for excellence.
New India Assurance’s financial struggles are a concern, given its significant role in the Indian economy. The company has been in operation since 1919 and has a long history of providing insurance coverage to a wide range of industries and individuals. Its financial health is closely tied to the health of the Indian economy, and any significant difficulties experienced by the company could have far-reaching consequences. As such, regulators and policymakers will likely continue to closely monitor the company’s financial performance and take steps to ensure its stability and viability.