Best Affirms GIC’s ‘A’ Ratings

October 28, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “A” (Excellent) and the issuer credit rating of “a” of the General Insurance Corporation of India (GIC) with a stable outlook.

“The ratings of GIC reflect its leading business profile in the Indian reinsurance market and an expected improvement in underwriting performance,”said Best. “An offsetting factor is the pressure on risk-adjusted capitalisation arising from an increase in the proportion of equities in the company’s portfolio.”

Best said it “believes GIC will retain its leading position within its domestic market despite an expected decline in domestic premium over the medium term with the likely cessation of compulsory cessions from which it currently benefits as India’s national reinsurer (currently 20 percent cession from domestic insurers).” Best also “expects GIC to increase its acceptance of international emerging market business through its representative offices in London, Moscow and Dubai.”

The rating agency indicated it “anticipates an improvement in the company’s combined ratio at year-end March 2006, though still above 100 percent, following an increase to 111.6 percent at year-end March 2005 (from 99.1 percent in the previous year).”

Best cautioned, however, that it believes “GIC’s risk-adjusted capitalisation, though at an excellent level, is under pressure from its high exposure to the equity markets (with approximately 40 percent of invested assets at market value in domestic equity). Although GIC’s investment portfolio conforms to regulatory guidelines, A.M. Best believes that the concentration of the company’s investment portfolio in India exposes it to increased credit risk.”

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