HONG KONG: A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of General Insurance Corporation of India (GIC Re) (India). The outlook for both ratings is stable.

The ratings reflect GIC Re’s strong risk-adjusted capitalization, improved expense ratio and strong market presence.

GIC Re’s strong capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), has further strengthened in fiscal year 2009-10, mainly due to the revival of the Indian equity market.

GIC Re’s expense ratio has been improving over the past five years. In fiscal year 2009-10, GIC Re’s expense ratio stood at 23%, as compared to 27% in 2005-06. The improvement was partly due to the change of commission structure imposed by GIC Re in the domestic market in 2009-10. The company

also introduced a profit commission for all lines of business and different commission rates for different companies depending on claims experience for the obligatory cessions in India.

GIC Re is the sole domestic reinsurer in India and is able to influence the underwriting discipline of the domestic market. In addition, more resources have been reallocated in recent years to support the company’s growing overseas business. In 2009-10, 44% of GIC Re’s gross premiums were from foreign markets, as compared to 22% in 2006-07.

Offsetting these positive factors is GIC Re’s volatile underwriting performance and its high exposure to the equity risk.

GIC Re’s combined ratio was above 100% in the past five years. The poor underwriting performance was attributed to the high loss ratio of its domestic business. As the overseas business contributes significantly more to underwriting results, GIC Re’s ability to generate and sustain favorable

performance from this portfolio will be crucial to its overall underwriting results. If the poor underwriting performance of the overall portfolio continues and further deteriorates, it will create pressure on the stability of the ratings.

GIC Re’s positive investment earnings have consistently offset its underwriting losses over the past five years. However, the company’s investment income is heavily reliant on the Indian equity market as a

significant portion of its invested assets are allocated in equities. A.M. Best believes GIC Re’s high exposure to equity risk will impact the stability of its risk-adjusted capitalization and operating income.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology — Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Understanding Universal BCAR”; “Natural Catastrophe Stress Test Methodology”; and “Assessing Country Risk.” Methodologies can be found at www.ambest.com/ratings/methodology.