Ratings Recap: GIC Re, Seguros Inbursa, National Grid

February 22, 2013

A.M. Best Asia-Pacific Limited has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of General Insurance Corporation of India (GIC Re), both with stable outlooks. The ratings reflect GIC Re’s “strong risk-adjusted capitalization and its prominent business profile in the Indian and overseas reinsurance markets,” said Best. “GIC Re’s capital and surplus amounted to INR 247.6 billion [$4.56 billion] for fiscal year 2011-12, which was a decrease of 13.5 percent from INR 286.4 billion [$5.274 billion] for 2010-11. GIC Re’s capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), also weakened in fiscal year 2011-12, mainly due to capital provisioning against the Indian Motor Third Party Insurance Pool (IMTPIP) and natural catastrophe losses in 2011-12.” Best added, however, that GIC Re has nonetheless “continued to maintain low underwriting leverage and sound liquidity. GIC Re’s capitalization is adequate for its current rating level.” Best explained that “GIC Re is the sole domestic reinsurer in India and continues to influence the underwriting discipline of the domestic market through its market leadership. GIC Re emphasizes its customer relationship management and offers risk rating services to its Indian and overseas clients. Despite the worsened underwriting performance for fiscal year 2011-12, GIC Re continues to show improvement in its expense ratio, mainly attributed to the decreasing trend in the net commission ratio as a result of continuous reductions in flat commission and the introduction into profit commission.” As offsetting factors Best cited “GIC Re’s high exposure to equity market volatility and increasing catastrophe exposure.” The report noted that “GIC Re is subject to high investment risk predominantly due to a high proportion of investment in equity securities. As at March 2012, the market value of GIC Re’s equity investment was around 40 percent of its total assets. Volatility in the Indian equity market can have a direct impact on GIC Re’s capitalization level through the fair value change account.” Best also said: “GIC Re’s catastrophe exposure has increased in recent years, as a result of the growth in its domestic and overseas business. Global natural catastrophes that occurred in 2011, including the Thailand Flood, Christchurch and Japanese earthquakes, had a material impact on GIC Re’s underwriting result. Future upward rating actions could occur if GIC Re demonstrates the ability to achieve a consistently favorable underwriting and operating performance, improve its risk-adjusted capitalization and strengthen its investment, underwriting and catastrophe risk management capability. Conversely, negative rating actions could occur if the company’s risk-adjusted capitalization declines to a level below A.M. Best’s expectations, or if the company’s operating performance deteriorates significantly.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Mexico’s Seguros Inbursa, S.A. Grupo Financiero Inbursa, both with stable outlooks. Best said the ratings reflect Seguros Inbursa’s “solid risk-adjusted capitalization, overall historical profitability and diversified business profile. The ratings also reflect the company’s affiliation with Grupo Financiero Inbursa S.A.B. de C.V., one of the largest financial groups in Mexico “Best said: “Seguros Inbursa writes both life and non-life business and remains one of the larger and more profitable domestic insurance companies operating in Mexico. The company’s focus on expense management, along with consistent levels of investment income, has historically resulted in favorable overall earnings. This has enabled Seguros Inbursa to continue to enhance its risk-adjusted capitalization. In addition, Seguros Inbursa continues to benefit from synergies and significant operating efficiencies as a result of its access to Grupo Financiero Inbursa’s vast financial and system networks.” The report also noted that “Seguros Inbursa has shown disciplined underwriting in a highly competitive market, while its risk-based capitalization remains fully supportive of its current ratings and outlook. Seguros Inbursa’s profitability is complemented by consistent levels of investment income.” As partial offsetting factors Best cited “Seguros Inbursa’s continuing underwriting losses in key business segments and its reliance on investment income for its overall earnings. In addition, the Mexican insurance market remains very competitive, and Seguros Inbursa will be challenged to maintain profitability and market share.” In conclusion Best said: “Potential positive rating triggers would include sustained improvement in Seguros Inbursa’s underwriting results in conjunction with tangible improvements in the Mexican regulatory environment and other country risk metrics. Possible negative rating triggers could include deterioration in the company’s underwriting results, and consequently, a decline in its risk-based capitalization. While Seguros Inbursa is well positioned at its current rating level, factors that may lead to rating enhancement include sustained improvement in its underwriting performance and an upgrade in Mexico’s country risk tier rating.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of National Grid Insurance Company (Isle of Man) Limited (NGIC), both with stable outlooks. The ratings of NGIC reflect its “strong level of risk-adjusted capitalization, which is supported by a comprehensive reinsurance program,” Best explained. “The ratings also consider the captive’s importance within the risk management framework of its parent, National Grid plc. (NG plc). An offsetting rating factor relates to the volatility of NGIC’s operating performance.” Best added that it “expects risk-adjusted capitalization to remain strong, in spite of NGIC’s exposure to Superstorm Sandy during financial year 2013. Gross losses derived from Superstorm Sandy are expected to amount to £186 million [$283.787 million]. However, this loss was largely mitigated by NGIC’s comprehensive reinsurance program, which is placed with highly rated reinsurers. NGIC’s net loss exposure to Superstorm Sandy is unlikely to exceed £40 million [$61 million]. Best also noted that “NGIC’s underwriting results are subject to considerable volatility, owing to the nature of risks it underwrites. Exposure to large loss events in financial year 2013 is expected to result in a combined ratio (loss ratio plus operating expense ratio) in excess of 200 percent. However, technical earnings continue to be supported by the company’s prudent reserving approach.” In conclusion Best said it would “continue to monitor the underwriting performance of NGIC going forward. NGIC remains core to NG plc’s risk management framework, with the objective of mainly mitigating exposure to business interruption and property damage. Upward rating movement is unlikely at present. Negative rating actions could occur if a poor underwriting performance were to become more frequent in the near future, and/or a material deterioration of risk-adjusted capitalization were to occur. In addition, a significant deterioration in NG plc’s financial profile would likely lead to a review of NGIC’s ratings.”

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