AM Best said it has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of a- of General Insurance Corporation of India (GIC) (India). The outlook for both ratings is stable.
The rating agency said that the ratings reflect GIC’s adequate risk-adjusted capitalisation, improved underwriting performance and strong market presence.
GIC’s risk-adjusted capitalisation, as demonstrated by Best’s Capital Adequacy Ratio (BCAR), supports its current rating level. Although the company’s capital position has been eroded due to the declining Indian stock market in fiscal year 2008-09, on a market value basis approximately 50 per cent of its invested assets were in equities, and its BCAR remains sufficient.
GIC’s underwriting performance improved over the past two years. The company’s audited financial results showed a volatile underwriting performance due to change of accounting policy; however, the adjusted combined ratio (excluding the effect of change of accounting policy) improved to 95 per cent in fiscal year 2007-08 and 96 per cent in fiscal year 2006-07 from 145 per cent in fiscal year 2005-06.
As the sole domestic reinsurer in India, GIC’s business profile remains strong, with the company maintaining its leading business position in the domestic reinsurance market.
Offsetting factors are its reliance on investment income to generate profits and the concentration of its investment portfolio on the Indian equity market.
GIC is heavily reliant on investment income to offset its underwriting losses. However, the performance of investment income depended on the Indian equity market, given that approximately 50 per cent of its investment assets were invested in equities.