Indian reinsurer GIC Re downgraded over poor balance sheet strength

Ratings agency AM Best has downgraded the financial strength rating of Indian reinsurer GIC Re to B++ from A-, citing "deterioration in balance sheet strength".

According to AM Best, GIC Re’s risk-adjusted capitalisation declined to the "strong level" at year-end 2020, as compared with the strongest level in fiscal year 2019 and prior. This deterioration follows an approximately 30 percent decline in GIC Re’s reported capital and surplus in fiscal year 2020 due to a significant fall in the market value of its equity investments, as well as from the reporting of a full year operating loss.

It noted that in recent years, the company has relied on investment returns and realised gains to offset the reported underwriting losses and grow its capital base; however, under the current conditions, such a model may no longer be sustainable.

The agency stated that "competitive market conditions and disruption borne by the COVID-19 pandemic" will remain key challenges for GIC Re over the near term.

General Insurance Corporation of India's outlook of the FSR has been revised to stable from negative.

Max Carter, CEO of specialist insurance intermediary New Dawn Risk, believes that the downgrade of GIC Re "creates a gap in the market that many will be eager to fill".

“GIC have been competing aggressively on price and the downgrade should send alarm bells out to any buyers of reinsurance who rely on them," said Carter. "The downgrade will also send significant ripples through the parts of the global reinsurance market that deal with India. Buyers unable to work with GIC because of their poor rating will need to source new capacity. This can be capitalised on by other participants who have better ratings and the energy to bid to fill the void that has been created.”