Increased balance sheet strength and ‘appropriate’ enterprise risk management has prompted AM Best to issue an across the board upgrade to General Insurance Corporation of India (GIC Re), and alter its outlook from stable to positive.
In an 11 October press release AM Best said that it has upgraded GIC’s Financial Strength Rating to A- from B++ , its Long-Term Issuer Credit Rating to a- from bbb+, as well as affirming the carriers’ India National Scale Rating of aaa.IN – meaning ‘Exceptional’, with a stable outlook.
“The ratings reflect GIC Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, favourable business profile and appropriate enterprise risk management. In addition, the ratings factor in a neutral impact from the company’s ownership by the government of India,” AM Best said in a statement.
The ratings agency said that the upgrades reflect an improvement in GIC Re’s balance sheet strength fundamentals, noting its risk-adjusted capitalisation under the Best’s Capital Adequacy Ratio (BCAR), had exhibited an improving trend over the past four years, and had remained at the strongest level in fiscal year 2024.
“This is supported by a significant increase in shareholders’ equity over this period, driven by investment fair value gains, and an increase in retained earnings,” AM Best said.
Looking forward, the rating agency said that it expected GIC Re’s risk-adjusted capitalisation to be maintained at the strongest level over the medium term despite its investment profile.
“Notwithstanding, the company’s exposure to market risk remains a partially offsetting balance sheet factor, given its relatively high allocation to domestic equity investments,” AM Best said.
AM Best said GIC Re’s operating performance was ‘adequate’, with a five-year average return-on-equity (ROE) ratio of 6.5% in the years up to 2024). In fiscal year 2024, GIC Re reported a ROE ratio of 9.5% based on consolidated profits, despite its underwriting performance remaining unprofitable with an elevated combined ratio.
“Investment income, including realised gains on equity investments, is a key contributor of overall earnings and historically has made up for the lack of technical profits,” AM Best said.
GIC Re is the tenth largest non-IFRS 17 reinsurers globally according to AM Best’s most recent annual ranking of the top 50 global reinsurers and it is the largest Indian reinsurer, with a domestic market share averaging between 60-70% in recent years.
“The company benefits from mandatory domestic reinsurance cessions of 4%, and also a right of first refusal that provides it with preferential access to domestic reinsurance placements. The company’s underwriting portfolio is generally well-diversified by lines of business and geography,” AM Best said.
