GIC Re reduces agri cover by 45%

In a bid to improve its ratings and profitability, the country's lone reinsurer GIC Re took a host of decisive measures, including cutting its domestic agriculture capacity significantly by up to 45 per cent. The move comes at a time it bore a downgrade from international rating agency AM Best last week.

Sources said GIC Re chairman and managing director Devesh Kumar Srivastava told his colleagues in an internal communique that the reinsurer had decided to cut its domestic agriculture capacity-- the largest amount of reinsurance available from the company---by 45 per cent. "Agriculture, which formed about 30 per cent of the risk portfolio on the back of government supported national crop insurance scheme, is likely to shrink to about 18 per cent during 2020-21. Thus, a major source of strain on GIC Re's financials has been addressed," the source said.

AM Best has downgraded the reinsurer's financial strength credit rating from A-(excellent) negative outlook to B++ (good) with stable outlook. The rating revision is based on the financials for FY19-20.

However, the reinsurer has chalked out various strategies to improve its rating and profitability in the future.

In a letter, the reinsurer said it had taken decisive actions on the domestic property portfolio in 201920. "These improvements will feed into the financial results going forward. These together with supplemental measures on the underwriting discipline and portfolio rebalancing will put GIC Re on the path of sustained underwriting profitability."

GIC Re has also gone for increasing outward purchases. Moreover, its domestic exposure to Covid-19 insurance claims is extremely limited.

The rating downgrade follows deterioration, in AM Best's view, in GIC Re's balance sheet strength. GIC Re's riskadjusted capitalisation, as measured by Best Capital Adequacy Ratio (BCAR), declined to the 'strong' level at fiscal year-end 2020 as compared with the 'strongest' level in fiscal year 2019 and prior. This deterioration follows about 30 per cent 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, AM Best explained.