Fin Strength Ratings Can Be Used By Private Insurers

A financial strength rating (FSR), indicating an insurance company's ability to meet the obligations to the policyholders, can be used by the new private insurance firms as an important marketing tool, said Crisil.

In a study titled 'Private Insurance Companies - Off the Block', the rating agency said: "The success of the new players will depend on their perceived credibility, ability and willingness to re-capitalise, build strong marketing and distribution channels, competitively price their products, introduce new products and offer better service levels. An FSR can be used by the insurance companies as an additional marketing tool."

Crisil said as there was no track record available for the new insurance companies, FSR for the new private players will depend on the parentage, track record of the joint venture partners and their financial and business profiles.

 

It added, "The quality and track record of the management of the insurance venture, its plans / projections, would also be factored in for rating."

World wide, insurance companies use FSRs as one of the tools to establish credibility in the market.

Standard and Poor's has over 1,500 FSRs outstanding as on September 2001. Its ratings take into account the insurance company's track-record, its current and prospective business and financial risk profiles, and also the quality of management.

In India, Crisil has two FSR outstandings (both 'AAA') assigned to New India Assurance Company Ltd and Oriental Insurance Company Ltd.

The Crisil study said though there was scope for the private players to grow, given the low penetration and limited products in the country, public sector firms will dominate the business at least in the short-run.

Crisil said: "The new private sector players will have to invest in the business for a number of years before returns can be expected. This -- coupled with the fact that the existing players, both life and general insurance, have a strong financial profile and are well entrenched in the business -- is expected to result in these players dominating the market over the next few years."