The Hindu Business Line : Indian insurers’ credit ratings seen stable

Mumbai, Sept. 24 The credit ratings of Indian insurance companies — both life and non-life — are unlikely to be affected in the near future despite the global financial crisis affecting the foreign stakeholders of these companies.

But if the foreign partners are unable to bring in additional capital in the long term due to the global slowdown, it could mean a change of ownership for Indian insurance companies, said analysts.

In the wake of the financial crisis, a number of companies in the banking and insurance sector across the world have faced downgrades, either due to their exposure to Lehman Brothers and AIG or to reflect heightened industry risk following the turmoil in the global financial markets.

Foreign companies such as Allianz, Prudential Financial Inc, AXA, AEGON, Sun Life Financial, Aviva, BNP Paribas, Fortis and ING have all reported some kind of exposure to either Lehman Brothers or AIG or both.

So far, the ratings of AIG and its subsidiaries and Fortis’ Asian subsidiary have been downgraded.

All these companies are stake holders in Indian insurance companies and hold about 26 per cent stake each.

But, according to analysts, this is unlikely to affect the credit ratings of these insurance companies at least in the short term.

Strong parentage

“Most of these companies have strong parents and their ratings are unlikely to be revised in the near term,” said Mr Subroto Ray, Head Corporate Sector Ratings, ICRA.

“In the short-term, these relatively new insurance companies are well capitalised, well managed and have good solvency margins, much more than the requirements specified by the IRDA. All the foreign partners have already brought in capital commensurate with their equity stake,” said Mr Rajesh Mokashi, Executive Director, Care Ratings.

But this situation could change in the long term if the foreign partners are unable to bring in more capital for fuelling the expansion plans of companies.

“In the long term, if the foreign partner is unable to bring in the required capital, the Indian partner always has the option to buy him out or look for another partner. Besides, the insurance companies even have the option of listing themselves on the bourses to raise funds,” Mr Mokashi added.

The global financial crisis could lead to a change in the foreign ownership of many domestic insurance companies, said Mr Ashu Dutt, MD, Asia Financial Services Practice, Northbridge Capital.

As India and China are considered among the fastest growing markets in the world, other companies would be keen on entering the sector and would look for tie-ups with companies here.

“Even if the Government raises the cap on foreign direct investment to 49 per cent from the existing 26 per cent, the foreign partners might decide not to raise their stake due to their inability to bring in the requisite amount of capital. It could even lead to the foreign partners selling off their stakes to other European entities that have escaped unscathed in the current crisis,” said Mr Dutt.

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