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File: General Insurance Pdf 44292 | 23082021063915 Royal Sundaram General Insurance C Limited
press release royal sundaram general insurance co limited august 23 2021 ratings facilities instruments amount rating rating action rs crore subordinated debt issue 176 care aa stable assigned proposed double ...

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                                  Press Release 
           
                                         Royal Sundaram General Insurance Co. Limited 
                                                           August 23, 2021 
          Ratings 
          Facilities/Instruments                      Amount                              Rating              Rating Action 
                                                     (Rs. Crore) 
          Subordinated Debt Issue                       176                          CARE AA+; Stable           Assigned 
          (Proposed)                                                           (Double A Plus; Outlook: Stable) 
          Total Long-term Instruments                   176                                                          
                                       (Rs. One hundred seventy-six crore only) 
          Details of facilities in Annexure-1 
           
          Detailed Rationale & Key Rating Drivers 
          The  rating  assigned  to  the  proposed  subordinated  debt  issue  of  Royal  Sundaram  General  Insurance  Co.  Limited  (Royal 
          Sundaram) derives strength from its strong parentage of Sundaram Finance Limited (SFL), benefits derived from being part of 
          the Sundaram Finance group, its experienced board of directors, senior management team, long track record of the company 
          in the general insurance industry and solvency position supported by periodical equity infusion. 
          The rating is constrained by relatively moderate size of operations along with limited presence in other product segments 
          barring motor insurance, weak albeit improving underwriting performance with combined ratio1 of above 100% and intense 
          competition in the general insurance industry. 
          Rating Sensitivities 
          Positive Factors - Factors that could, individually or collectively, lead to positive rating action/upgrade: 
                 Significant increase in the size of operations and market share along with product & geographical diversification with 
                  no single state contributing to more than 10% of gross direct premium (GDP). 
                 Improved underwriting performance with combined ratio of less than 100% on sustained basis 
          Negative Factors - Factors that could, individually or collectively, lead to negative rating action/downgrade: 
                 Moderation in the credit profile of the promoter, Sundaram Finance Limited. 
                 Significant decline in shareholding of the promoters. 
                 Decline in solvency margin below 1.70x on a sustained basis. 
           
          Detailed description of the key rating drivers  
          Key Rating Strengths 
          Strong parentage of SFL and benefits derived from being part of the Sundaram Finance group 
          Royal Sundaram is a joint-venture company between SFL (50%), Ageas Insurance International N.V. (Ageas, 40%) and other 
          Indian shareholders (10%). The Sundaram Finance group has a long track record of establishing and successfully running 
          financial services company. SFL has around seven decades of experience in the lending business and is a prominent player in 
          the business of commercial vehicle financing in India with an AUM of Rs.30,882 crore as of March 31, 2021, and the brand 
          ‘Sundaram’ has strong brand image and is well-positioned among its customers. Royal Sundaram also benefits from access to 
          the group's established brand name, branch infrastructure and clientele of SFL and its group companies. Royal Sundaram 
          derives benefits in the form of managerial, operational and financial support from the Sundaram Finance group and the 
          group also  provides  major business  support  to Royal  Sundaram  with  notable proportion  of  the GDP  coming  from  the 
          Sundaram Finance group’s business channels. As a part of diversification strategy, the group has ventured into insurance 
          through Royal Sundaram, asset management, investment advisory and portfolio management services through Sundaram 
          Asset Management Company Limited and to housing finance through Sundaram Home Finance Limited (rated ‘CARE AA+; 
          Stable / CARE A1+’). 
          The foreign promoter of Royal Sundaram, Ageas is a multinational insurance company headquartered in Brussels, Belgium 
          and it currently operates in fourteen countries worldwide through subsidiaries/JV partnerships with an employee base of 
          around 45,000. In India, Ageas entered life insurance through a JV with a bank in 2008 (Shareholding as on March 31, 2021: 
          49.00%) and general insurance through Royal Sundaram (JV, 40.00%) in 2019. The Ageas group also remained as one of the 
          major  reinsurers  for  Royal  Sundaram.  Continuation  of  the  equity  and  operational  support  would  remain  a  key  rating 
          sensitivity. 
           
          Established track record of operations and experienced board & senior management team 
          Royal Sundaram got license from Insurance Regulatory and Development Authority of India (IRDAI) in October 2000 as first 
          private sector general insurance company in India and has been in the insurance business for more than two decades. As on 
          March 31, 2021, Royal Sundaram serves around 2.80 crore customers through its branch network of 159 spread across all 
          states and union territories (UTs) of India and an employee base of 2,323. 
                                                                       
          1
            Combined Ratio: [Net Claims Incurred +Net Commission + Operating expense] / Net Premium Earned 
                1                                                                                        CARE Ratings Limited 
           
                    Press Release 
      
     Mr MS Sreedhar is the managing director of Royal Sundaram for the last 6 years and he handles the day-to-day operations of 
     the company. He serves in the top management of the company since inception and he is ably assisted by a team of senior 
     management in various functions, who bring in considerable experience. 
     As on March 31, 2021, the board of Royal Sundaram consists of ten directors with extensive experience in financial services 
     industry including three representatives from SFL, two representatives from Ageas, four independent directors and managing 
     director.  
      
     Solvency position supported by periodical equity infusion 
     During FY21 (refers to the period April 1 to March 31), with moderation in GDP and retention of profits, solvency margin 
     stood at 1.87x as on March 31, 2021 as against 1.69x as on March 31, 2020, and is well above the regulatory requirement of 
     1.50x. It is to be noted that the company has an outstanding subordinated debt of Rs.100 crore (raised during FY17). The 
     company has raised equity in the past as and when required and the latest being in FY18 of Rs.295 crore from the Sundaram 
     Finance group. Also, the company has been continuously making profits (PAT) since FY12 and the internal accruals helped in 
     improving the capital and solvency position.  
     As on June 30, 2021, the solvency ratio stood at 1.97x. With the company’s plan to raise additional subordinated debt, 
     solvency ratio is expected to improve further and aid the planned growth for the next few years. Also, SFL is expected to 
     support Royal Sundaram to provide timely capital support on need basis. 
      
     Key Rating Weaknesses 
     Moderate size of operations along with limited presence in other product segments barring motor segment 
     Despite having a track record of more than two decades, size of Royal Sundaram continues to be relatively moderate. The 
     share of Royal Sundaram (in terms of GDP) among private general insurance players was continuously moderating from 6.6% 
     in FY11 to 2.9% in FY21. However, on absolute terms, GDP has improved.  
     Motor (Own Damage + Third Party) continues to be the major product segment for Royal Sundaram with its share increasing 
     from 56.77% in FY20 to 70.11% in FY21. Royal Sundaram started providing crop insurance during FY19 under Pradhan Mantri 
     Fasal  Bima  Yojana  (PMFBY)  in  the  states  of  Assam,  Jharkhand,  Tripura  and  Odisha,  and  the  share  of  Crop  insurance 
     significantly increased to 12.61% in FY19 and 20.75% in FY20. The company consciously reduced the crop exposure and the 
     crop exposure moderated to 2.02% in FY21. This was also due to non-realisation of premium subsidy in some of its exposure. 
     The share of top three products increased from 88% (Motor, Crop & Health) in FY20 to 92% (Motor, Health & Fire) in FY21. 
     GDP has grown at a CAGR of 18.50% over the 5 years ended FY20. However, with the Covid-19 pandemic-led slowdown and 
     the company’s conscious effort to reduce the crop insurance exposure, GDP declined 23% Y-o-Y from Rs.3,667 crore during 
     FY20 to Rs.2,822 crore in FY21. Excluding crop insurance, GDP moderated by 4.85% y-o-y from Rs.2,906 crore during FY20 to 
     Rs.2,765 crore during FY21. During Q1FY22, GDP stood at Rs.619 crore as against Rs.584 crore during Q1FY21 and the share 
     of motor during Q1FY22 stood at 58.55%. 
     Royal Sundaram uses multiple distribution channels such as brokers, agents, corporate agents, etc., to reach the clients. 
     Brokers remained as the key channel for the company with 46% of the GDP sourced through this channel followed by 
     individual agents (26%), corporate agents (14%) and direct business (14%). 
     Despite Royal Sundaram having presence across India, Tamil Nadu continues to be the top contributing state with 19.17% 
     share of total GDP during FY21 (PY:15.36%) majorly because of the Sundaram Finance group’s strong hold. During FY21, top 
     three  states contributed  46.97% (Tamil Nadu, Maharashtra, Karnataka) as against 43.36% in FY20 (Tamil Nadu, Odisha, 
     Maharashtra). 
      
     Weak albeit improving underwriting performance 
     Combined ratio continues to remain above 100%, which is similar for peers in the industry and investment income remains 
     the key source of profitability. The combined ratio was above 100% majorly due to higher loss ratio (Net Claims Incurred /Net 
     Premium Earned) in the motor segment as compared to the other segment. Loss ratio of Motor stood high at 88% (PY: 92%) 
     followed by Health at 72% (68%) and Fire at 60% (52%) during FY21. Investment income during FY21 stood at Rs.473 crore as 
     against Rs.415 crore during FY20. Operating profit has improved during FY21 despite moderation in GDP majorly due to the 
     lower reinsurance ceding and lower loss ratio especially in the motor segment because of Covid-19 lockdown. With the lower 
     Ceding, risk retention ratio has increased to 74.18% during FY21 from 63.35% during FY20. Net profit remained lower in FY20 
     due to write-off of Rs.65 crore and provisions of Rs.23 crore on its exposure to one of the investments which had become 
     NPA.  The  company  also made  provision  of  Rs.17 crore and  written-off  another  Rs.10 crore  during  FY21  for  the  same 
     exposure.  
     During FY21, Royal Sundaram reported a PAT of Rs.158 crore on a GDP of Rs.2,822 crore and operating profit of Rs.166 crore 
     as against a PAT of Rs.25 crore on a GDP of Rs.3,667 crore and operating profit of Rs.65 crore during FY20. During Q1FY22, 
     Royal Sundaram reported a PAT of Rs.61 crore on a GDP of Rs.619 crore and operating profit of Rs.56 crore. 
     The company is looking at improving the loss ratio by improving share of non-motor segments with increasing its focus in 
     retail health and commercial segments. 
        2                                            CARE Ratings Limited 
      
                    Press Release 
      
     Industry Outlook 
     Despite the manifold challenges present in the current scenario, the non-life industry ended FY21 on a positive note with a 
     single-digit growth of 5.2% during FY21. The growth was driven by the private sector who grew at a much faster pace 
     compared to the public sector. Within the various segments, fire and retail health has contributed to the growth in the 
     industry, however, the growth momentum was pulled by the fall in motor insurance premiums. In FY22, along with the 
     expected uptick in the health segment, any increase in the premium levels of the Motor TP segment, which was held steady 
     in FY21, could drive the non-life premiums. 
      
     Impact of Covid-19 
     During Q1FY21, GDP of general insurers has degrown 6.7% Y-o-Y majorly because of the pandemic-led lockdown due to 
     Covid-19. Despite the second wave of Covid-19, GDP has grown 11% Y-o-Y in Q1FY22. In trend with the industry, GDP of 
     Royal Sundaram has degrown 18.6% in Q1FY21 and grown at 6.0% in Q1FY22. 
     During Q1FY22, loss ratio and combined ratio stood at 86.06% and 112.50% as against 66.82% and 93.60% during Q1FY21, 
     respectively. Loss ratio was significantly lower during Q1FY21 majorly due to the lower claims in motor segment because of 
     Covid-19 lockdown. 
      
     Liquidity: Adequate 
     As on March 31, 2021, Royal Sundaram holds Rs.74 crore cash for the daily operations and total investment of Rs.6,484 crore 
     as on March 31, 2021, out of which Rs.5,797 crore is invested in debt securities. As on March 31, 2021, the company has 
     11.36% of the debt portfolio with residual tenure of less than 1-year. Of the investments, 43.89% was rated AAA and 48.21% 
     are issued by central and state governments. It is to be noted that significant portion of debt securities is readily marketable 
     in nature and offers sufficient liquidity cushion to the company. 
      
     Analytical approach: Standalone approach along with factoring in the linkages with promoter, Sundaram Finance Limited 
     (SFL). 
      
     Applicable Criteria 
     Criteria on assigning ‘Outlook’ and ‘Credit Watch’ to Credit Ratings 
     CARE’s Policy on Default Recognition 
     Financial Ratios - Insurance Sector 
     CARE's Rating Methodology for Insurance Companies 
     Rating Methodology: Notching by Factoring Linkages in Ratings 
      
     About the Company 
     Royal Sundaram General Insurance Co. Limited (formerly known as Royal Sundaram Alliance Insurance Company Limited) was 
     incorporated in August 2000 and got license from IRDAI in October 2000 as first private sector general insurance company in 
     India.  The company offers complete bouquet of general insurance products like fire, marine, health, personal accident, 
     liability, travel, etc., while, Motor (OD + TP) remained as the major product with 70.11% of GDP during FY21. During FY21, the 
     company has a market share of 2.9% among private general insurance players. 
     As on March 31, 2021, Royal Sundaram serves around 2.80 crore customers through its branch network of 159 spread across 
     all states and UTs of India and an employee base of 2,323 and Tamil Nadu contributed 19.17% of the total GDP during FY21. 
     As on March 31, 2021, Sundaram Finance Limited holds 50.00%, Ageas Insurance International N.V. holds 40.00% and the 
     other Indian shareholders hold the remaining 10.00% in Royal Sundaram. 
      
     Brief Financials (Rs. Crore)         FY20 (A)    FY21 (A) 
     Gross Direct Premium                      3,667       2,822 
     PAT                                        25          158 
     Total Assets                              6,730       7,469 
     Tangible Networth                         1,022       1,337 
     Net NPA (%)                               1.53         0.93 
     Solvency Ratio                            1.69         1.87 
     A: Audited;  
      
     Status of non-cooperation with previous CRA: Not Applicable 
     Any other information: Not Applicable 
     Rating History for last three years: Please refer Annexure-2 
     Complexity level of various instruments rated for this company: Please refer Annexure-3 
     Covenants of rated instrument / facility: Not Applicable 
        3                                            CARE Ratings Limited 
      
                                   Press Release 
           
          Annexure-1: Details of Instruments/Facilities  
                 Name of the            ISIN    Date of      Coupon      Maturity    Size of the Issue   Rating assigned along 
                  Instrument                     Issuance      Rate        Date          (Rs. crore)      with Rating Outlook 
          Debt-Subordinate Debt          -          -           -           -                  176.00       CARE AA+; Stable 
           
          Annexure-2: Rating History of last three years 
                                                   Current Ratings                               Rating history 
           Sr.       Name of the                Amount                          Date(s) &    Date(s) &    Date(s) &    Date(s) & 
          No.     Instrument/Bank      Type                      Rating         Rating(s)    Rating(s)    Rating(s)    Rating(s) 
                       Facilities             Outstanding   
                                               (Rs. crore)                     assigned in  assigned in  assigned in  assigned in 
                                                                               2021-2022     2020-2021    2019-2020  2018-2019 
           1.  Debt-Subordinate Debt     LT     176.00     CARE AA+; Stable            -            -            -            - 
           
          Annexure-3: Complexity level of various instruments rated for this company 
           Sr. No.                 Name of the Instrument                                    Complexity Level 
              1.    Debt-Subordinate Debt                                                         Complex 
           
          Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This 
          classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write 
          to care@careratings.com for any clarifications. 
                                             
                4                                                                                             CARE Ratings Limited 
           
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...Press release royal sundaram general insurance co limited august ratings facilities instruments amount rating action rs crore subordinated debt issue care aa stable assigned proposed double a plus outlook total long term one hundred seventy six only details of in annexure detailed rationale key drivers the to derives strength from its strong parentage finance sfl benefits derived being part group experienced board directors senior management team track record company industry and solvency position supported by periodical equity infusion is constrained relatively moderate size operations along with presence other product segments barring motor weak albeit improving underwriting performance combined ratio above intense competition sensitivities positive factors that could individually or collectively lead upgrade significant increase market share geographical diversification no single state contributing more than gross direct premium gdp improved less on sustained basis negative downgrad...

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