Rationale

ICRA has reaffirmed the long-term rating for National Insurance Company Limited's (NIC) subordinated debt programme at [ICRA]A+. The outlook on the long-term rating has been revised to Stable from Negative. The revision in the outlook factors in the capital infusion from the Government of India (GoI), improvement in the combined ratio, and benefits from the fair value gain on the equity portfolio. While these factors led to an improvement in the solvency ratio to 1.21 times (subject to forbearance which is awaited from the regulator) as of March 31, 2021 (0.02 times in FY2020), it still remained weak. The rating factors in the company's weak solvency ratio (1.21 times as on March 31, 2021), which remains below the regulatory requirement (1.50 times) from Q1 FY2019. The solvency ratio was below the minimum regulatory requirement despite the capital infusion of Rs. 3,175 crore by the GoI in FY2021 and even after availing various forbearance for solvency calculation. Nevertheless, ICRA notes an improvement in the company's operations with the net loss reducing to Rs. 562 crore from the net loss of Rs. 4,108 crore in FY2020. The growth in the equity markets in 2021 resulted in a positive balance of Rs. 1,789 crore in the fair value change account (FVCA) as on March 31, 2021. The capital infusion, coupled with the positive FVCA balance, resulted in the company reporting a positive net worth of Rs. 2,378 crore as on March 31, 2021 compared to a negative net worth of Rs. 3,833 crore as on March 31, 2020. NIC's authorised capital currently is Rs. 7,500 crore and the paid-up capital is Rs. 5,675 crore. Hence, it has a balance capital of Rs. 1,825 crore which ICRA expects the GoI to infuse in future. ICRA takes note of the specific regulatory forbearance allowed to the company by Insurance Regulatory and Development Authority of India (IRDAI) for the entire tenure of the instrument. Under this, despite reporting net losses, NIC can service the debt instrument even if the solvency ratio is below the minimum regulatory requirement. ICRA expects that NIC is likely to report a solvency ratio below the minimum regulatory requirement in FY2022 as well unless it receives timely and sufficient capital infusion from the GoI. The rating continues to consider the company's sovereign ownership, as it is entirely owned by the GoI, and the expectation of continued support from the GoI in future. The rating continues to reflect NIC's position as one of the leading players in the market.