ICRA’s top rating for Cholamandalam General Insurance, Insurer to raise Rs 100 cr debt

ICRA has assigned the claims paying ability rating of iAA+ (pronounced as I double A plus) on Cholamandalam General Insurance Company, a joint venture between  Chennai based Murugappa group and Japanese Mitsui Sumitomo Insurance

 

 

The rating indicates high claims paying ability and that the prospect of meeting policyholder obligations is high. ICRA has also assigned the rating of [ICRA]AA(stable) for the proposed Rs. 100 crore subordinated debt programme of the company.

 

 

ICRA, however, takes note of the moderate scale of operations and concentration of portfolio mix on the motor portfolio (Motor-TP and Motor-OD together comprising 68% of gross direct premium written (GDPW) in H1FY2017).

 

 

ICRA also takes note of the company’s high dependence on the corporate agency channel which accounted for 70% of the premium mobilisation during H1FY2017.

 

 

Ability of the company to diversify its product and sourcing mix and manage overall regulatory risk in the insurance segment will be a key monitorable

 

 

ICRA also takes note of the company’s high dependence on the corporate agency channel which accounted for 70% of the premium mobilisation during H1FY2017.

 

 

Ability of the company to diversify its product and sourcing mix and manage overall regulatory risk in the insurance segment will be a key monitorable, said ICRA.

 

 

The rating also factors in the company’s experienced management team, strong underwriting capabilities and healthy profitability indicators (Return on Assets and Return on net worth of 3% and 17% respectively in FY2016).

 

 

The rating takes into consideration the strong parentage of Murugappa group (holding 60% stake as on September 30, 2016, through Tube Investment of India Ltd.) and Mitsui Sumitomo Insurance Company Ltd. (MSI, rated A1 on Insurance Financial Strength and issuer by Moody’s Investor Service, holding 40% stake as on September 30, 2016).

 

 

ICRA takes note of the demonstrated commitment of the foreign shareholder as reflected by the increase in its stake from 26% to 40% in FY2016, and expects the company to continue to receive technical and capital support from the parents as and when required.

 

 

While subordinated debt instruments cannot be serviced if regulatory solvency requirements are breached, ICRA takes note of the company’s current solvency indicators, its policy as well as track record of adhering to the same.

 

 

ICRA further expects that given the standing of the domestic parent in the Indian capital markets, there is a strong onus on the parent to ensure that CholaMS meets all its required regulatory requirements (on a continual basis) for timely and adequately servicing of the rated subordinate debt.

 

 

CholaMS’ JV partners provide support in the areas of sourcing, underwriting, reinsurance, product development, IT and internal controls and, capitalisation.

 

Source : AIP News Bureau

Date : 03-04-2017

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