ICRA reaffirms ECGC's claims paying ability rating of iAAA

Rating agency ICRA today reaffirmed the iAAA claims paying ability rating of Export Credit Gurantee Corporation of India Limited (ECGC), which indicates highest claims paying ability and a fundamentally strong position.
The iAAA claims paying ability rating also denotes the prospect of meeting policyholder obligations as best.
The rating factors in the sovereign ownership (100 per cent owned by the Government of India, GoI) and the financial support from the GoI in the form of regular capital infusion.
"The rating also considers ECGC's significant role in meeting the GoI's strategic objective of promoting exports; its long track record of business operations; market leadership in the country's export credit insurance industry; adequate claims management processes; and an experienced management team," ICRA said.

The rating derives comfort from the entity's large investment portfolio invested in liquid and predominantly safe asset classes, it added.
"While ICRA takes note of the higher claims paid by the company in the last two years and the consequent deterioration in its underwriting profitability, these concerns are adequately mitigated by the company's sovereign ownership and its policy role as an export credit insurance agency.

"While ECGC has been able to maintain its market position after deregulation of the sector, the low penetration of credit insurance in India continues to constrain incremental growth," the rating agency said in a statement.

ECGC's offerings are spread across a wide range of products including Export Credit Insurance for Banks (ECIB, (69% of gross premium in FY2016) and Short Term Policy business (29 per cent of gross premium in FY2016).
The ECIB business is mainly concentrated with PSU banks, where ECGC insures the packing and post-shipment credit portfolio of the banks.
ECGC, while underwriting the bank's portfolio, takes comfort from the established credit appraisal norms followed by banks in determining export credit limits and their being regulated by the Reserve Bank of India.
ECGC follows a differential pricing, whereby it charges higher premium for banks with higher claims ratios. In its Short Term Policy Business, ECGC provides credit insurance cover against commercial and political risk on exports.

The exporter could take cover on its entire turnover/ per shipment / per buyer basis/ multi buyer. The largest selling product is its turnover policy (covering export turnover and shipment policies constituting more than 90 per cent of the policy premium) where ECGC covers the entire value of business/shipment of the exporter.
Risk selection by ECGC is driven by a methodology which includes buyer risk evaluation and country risk evaluation.