General Insurance Corporation of India (GIC Re) produces an adequate operating performance, supported by a five-year average return-on-equity ratio of 5.3% (FY2019-2023), says AM Best.
Consolidated pre-tax profits (prior to the contribution to catastrophe reserves) showed an improvement in FY2023 (the financial year ended 31 March 2023) to INR89bn [$1.07bn] (FY2022: INR39bn), having benefitted from the company’s better underwriting and investment results during the year.
GIC Re’s underwriting performance improved slightly in FY2023 compared with FY2022, although it remained technically unprofitable. The improvement was driven by more favourable loss experience in GIC Re’s domestic property, agriculture and health reinsurance segments, although offset by heightened losses to its overseas property catastrophe treaties and motor portfolio.
Investment income, including realised gains on equity investments, remained a key contributor to overall earnings and has historically made up for the lack of technical profits.
Outlook revised to positive
AM Best has revised the outlook to positive from stable for GIC Re’s Financial Strength Rating (FSR) and to positive from negative for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the FSR of ‘B++’ (Good) and the Long-Term ICR ‘bbb+’ (Good). Additionally, AM Best has assigned the India National Scale Rating (NSR) of ‘aaa.IN’ (Exceptional) to GIC Re. The outlook assigned to the NSR is stable.
These credit ratings reflect GIC Re’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, favourable business profile and appropriate enterprise risk management (ERM). In addition, the ratings factor in a neutral impact from the company’s ownership by the government of India.
The revision of the Long-Term ICR outlook to positive from negative reflects an improvement in AM Best’s view of GIC Re’s balance sheet strength and ERM fundamentals. Both GIC Re’s risk-adjusted capitalisation and regulatory solvency position have shown sustained improvement over the past three years.
Shareholders’ equity increased 74% to INR675bn in FY2023 from INR388bn in FY2020, supported by fair value gains in GIC Re’s investment portfolio and an increase in retained earnings. Conversely, capital requirements arising from underwriting and investment activities have grown at a much slower pace, driven by management actions to improve the company’s capital adequacy.
In addition, AM Best views the negative pressure on GIC Re’s ERM assessment to have been alleviated through prompt remedial actions and ongoing initiatives to improve internal financial controls.
Business profile
GIC Re’s business profile is assessed as favourable. The company is the 16th-largest reinsurer globally based on gross premium written, according to AM Best’s most recent annual ranking of the top 50 global reinsurers. GIC Re is a leading reinsurer in India, with a domestic market share averaging between 60-70% in recent years.
The company benefits from mandatory domestic reinsurance cessions, which is at 4% for FY2024, 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.
