AM Best has assigned a Financial Strength Rating of B++ (Good), a Long-Term Issuer Credit Rating of “bbb+” (Good), and the India National Scale Rating (NSR) of aaa.IN (Exceptional) to ECGC Ltd. (ECGC) (India). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect ECGC’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. In addition, the ratings factor in a neutral impact from the company’s ownership by the government of India.
ECGC’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which is expected to remain at the strongest level over the medium term, as measured by Best’s Capital Adequacy Ratio (BCAR). ECGC benefits from good financial flexibility, as demonstrated by the ongoing capital support from India’s government. The company has a low to moderate risk investment portfolio. Although mainly consisting of domestic government bonds, the portfolio is exposed to interest rate risk given its medium to long duration. Offsetting balance sheet strength factors include the company’s net exposure to severe stress scenarios, although AM Best views this risk as being mitigated in part by the company’s robust capitalisation level.
AM Best views the company’s operating performance as adequate, supported by a five-year average return-on-equity ratio of 12.3% (fiscal years [FY] 2019- 2023). The company’s underwriting performance is volatile, exacerbated by macroeconomic challenges over recent years. Technical earnings showed a significant improvement in FY 2023, benefitting from a claims reserve release following a reassessment of incurred claims, as the claims development pattern was better than expected. ECGC’s underwriting portfolio typically has a weaker loss experience in the banks segment, balanced by more stable and favorable experience in the exporters’ segment. In addition, the company’s investment income is an important driver of its overall earnings and makes up for the lack of technical profits in some years.
ECGC’s business profile is assessed as neutral. ECGC is a monoline credit insurer providing export credit insurance to banks and Indian exporters, and benefits from government support, given the national objective to grow the export market. ECGC is a market leader in the export credit insurance market in India and insures approximately half of the total export credit disbursement by banks. However, the company’s business mix has limited product line diversification and a high business risk concentration to a small group of exporters and borrowers. In addition, its underwriting portfolio is exposed to moderate to high reserving risk given the long tail nature of credit insurance claims.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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Chris Lim, FCII, CFA
Associate Director, Analytics
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Associate Director, Public Relations
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Michael Dunckley, CFA
Associate Director, Analytics
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Senior Public Relations Specialist
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