Best Lowers India’s GIC Ratings

A.M. Best Co. has downgraded the financial strength rating to “A-” (Excellent) from “A” (Excellent) and the issuer credit rating to “a-” from “a” of General Insurance Corporation of India (GIC), and changed its outlook from stable to negative.

“The ratings reflect its excellent risk-adjusted capitalization and leading business position in the Indian market,” said Best. However it noted that the “very high combined ratio and the subsequent reliance on investment income to generate profits, while the investment portfolio remains highly concentrated in the Indian equity market,” constitute significant offsetting factors.

Best said it “views GIC’s combined ratios in most business lines as very high and believes that profits will remain entirely reliant on investment returns. Going forward, the motor third party liability pool is likely to have a positive, albeit limited, impact on the company’s performance. GIC’s investment returns (including gains) have been strong due to the booming domestic stock market;” however, Best indicated that it “remains concerned on the excessive dependence of the company’s investment portfolio on the equity market due to its volatile nature and also to the credit risk concentration in India.”

Best did note, however, that it “believes that GIC is likely to maintain its excellent risk-adjusted capitalization over the next two years as a result of retention of majority of its earnings. However, the high proportion of equity (50 percent) held in the domestic market maintains GIC’s risk-adjusted capital position under pressure.

“In A.M. Best’s opinion, GIC’s leading position in the domestic market is likely to be maintained over the next two years, as compulsory cessions in the Indian market (the company’s main source of premium income) are expected to continue in the near future. However, the company will continue to face increasingly challenging competition from the international reinsurers for the non-compulsory business. GIC is expanding internationally, and at year-end March 2006, 22 percent of its overall business derived from its overseas operations.

Source: A.M. Best