A.M. BEST REVISES OUTLOOK TO NEGATIVE FOR ISSUER CREDIT RATING OF ORIENTAL INSURANCE CO LTD

Friday, Oct 09,2009, 10:17:26 PM Click:

A.M. Best Revises Outlook To Negative For Issuer Credit Rating Of The Oriental Insurance Company Limited

Business Editors

OLDWICK, N.J.--Oct. 05, 2009--A.M. Best Co. has revised the outlook to negative from stable and affirmed the issuer credit rating (ICR) of "bbb+" of The Oriental Insurance Company Limited (Oriental) (India). Concurrently, A.M.

Best has affirmed Oriental's financial strength rating of B++ (Good).

The outlook for this rating remains stable.

The revised outlook for the ICR reflects the adverse impact of the economic turmoil on Oriental's adjusted capital and surplus, which decreased by 38% in 2008-09 due predominantly to decreases in the company's fair value reserves account. Despite the improvement of adjusted capital and surplus following the recovery of the Indian equity market in the first quarter of 2009, A.M. Best remains concerned with the variation in capitalization, which is largely the result of the volatile equity market. Over 50% of Oriental's invested assets are in Indian equities.

The ratings also reflect Oriental's poor underwriting performance, whereby the average combined ratio was 113.7% for the five years to fiscal year 2008-09. Over the past three years, the combined ratio continuously trended upward and was 134% in fiscal year 2008-09.

Finally, the influx of competitors since the liberalization of the Indian insurance market in 1999 has increasingly exerted pressure on the market share of public sector insurers. The market share of private companies in terms of direct premiums written was approximately 41% as of March 31, 2009. It will be a challenge for Oriental to maintain its market share and to make an underwriting profit in this competitive market environment.

On a positive note, Oriental has a strong presence in the Indian insurance market. In terms of direct premiums written, the company has maintained its position as one of the top four general insurers, with a market share of 13% in fiscal year 2008-09. The company's market share, along with that of other public sector insurers, has generally exhibited a significant negative trend over the past few years. However, this negative trend is showing signs of easing, following the creation of the commercial motor third party liability pool.

The ongoing organizational transformation exercise is expected to improve the efficiency and effectiveness of Oriental, which will increase its competitiveness. While significant short-term improvements in operating results are not expected, A.M. Best believes that the transformation process provides Oriental with the foundation for future profitability.

For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

A.M. Best Co.

Analysts

Philip Chung, CFA,

+852-2827-3409

philip.chung@ambest.com

or Billy Wong, CFA,

+852-2827-3414

billy.wong@ambest.com

or Public Relations

Jim Peavy,

+(1) 908 439 2200, ext. 5644

james.peavy@ambest.com