US credit rating agency AM Best has revised the issuer’s long-term credit rating outlook (long-term ICR) for General Insurance Corporation of India (GIC Re) from stable to negative due to the ” growing pressure” on the state-run reinsurer. enterprise risk management (ERM) assessment.
The rating agency however reaffirmed the financial strength rating (FSR) for GIC Re with a stable outlook.
The revision of the ICR’s long-term outlook from negative to stable reflects AM Best’s view of increasing pressure on GIC Re’s ERM valuation. company received a qualified audit opinion on the reconciliation of receivables and payables, indicating deficiencies in internal financial controls. company over the past few years, the risk culture and governance of the company are considered to be evolving at this stage,” the rating agency said.
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AM Best said the reinsurer’s balance sheet strength assessment was supported by its risk-adjusted capitalization, which remained at the highest level at year-end (March 31) 2022, as measured by the Best’s capital adequacy ratio (BCAR). In addition, the company’s regulatory solvency ratio has strengthened in recent periods, although it has remained sensitive to underwriting performance. Other balance sheet strength considerations include GIC Re’s high-risk investment portfolio with large equity holdings, which has historically subjected the company’s reported capital and surplus to volatility due to unrealized equity investment movements.
“The company’s operational performance is deemed adequate. GIC Re has recorded positive operating results over the past five years with an average return on equity ratio of 3.9% (fiscal years 2018 to 2022). Although underwriting performance has been consistently in deficit over the past five years with an average combined ratio of 109.3%, the company has shown improvements in technical metrics over recent periods through the implementation of measures portfolio clean-up,” the rating agency said on Thursday. , adding that overall operating results remained dependent on investment income (including realized gains on trading securities) to offset underwriting losses, with the earnings balance not expected to change materially in the near term.
Favorable business profile valuation reflects GIC Re’s position as a leading reinsurer in India, with approximately 70% market share, based on domestic written premiums ceded during the year 2021, he added.