GIC Re to elevate growth
AM Best of the United States has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of General Insurance Corporation of India (GIC Re).
These Credit Ratings (ratings) reflect GIC Re’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The negative outlooks reflect GIC Re’s persisting underwriting losses, which have grown in magnitude in recent years and increasingly have begun to hamper overall operating profitability.
GIC Re’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is categorized as strongest at fiscal year-end 2019, underpinned by relatively low underwriting leverage, a liquid investment portfolio and retrocession counterparties of high credit quality.
Going forward, AM Best expects elevated new business growth, which is forecast to outstrip the rate of internal capital generation, to result in risk-adjusted capitalization trending lower, albeit remaining at the strongest level over the near term.
Partially offsetting balance sheet factors include the company’s marginal local regulatory solvency ratio at 31 Dec 2019 and the company’s high common stock leverage, which exposes its balance sheet to volatility in the event of financial market instability in India.
GIC Re has a track record of reporting profitable overall operating results, as evidenced by a five-year average return-on-equity (ROE) ratio of 6% (2015-2019), as calculated by AM Best.
However, the company’s ROE declined to 4% in fiscal-year 2019, with an operating loss subsequently reported for the first nine months of fiscal-year 2020.
These results follow weaker-than-expected underwriting performance, emanating principally from domestic lines of crop, motor, fire and health business, as well as from natural catastrophes events impacting GIC Re’s foreign business portfolio.
The company’s combined ratio deteriorated to 106% in fiscal-year 2019 and to 116% for the first nine months of fiscal-year 2020, as calculated by AM Best.
Prospectively, AM Best expects underwriting performance to remain strained by domestic and foreign lines of business.
However, the negative trend may be abated partially by the rate increases that were implemented for domestic fire business, and management’s expectation of improving global reinsurance market conditions and an increased focus on underwriting discipline.
AM Best assesses GIC Re’s business profile as favorable.
GIC is a leading reinsurer in India, with over a 75% market share based on ceded domestic written premiums.
Headquartered in the United States, AM Best does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. fiinews.com
