The Hindu Business Line : GIC aims to be lead reinsurer in Afro-Asia

Having positioned itself as GIC Re, the General Insurance Corporation of India is now looking to expand its business in the global market. Mr R Chandrasekaran, General Manager, said that in this free-price regime, prudent underwriting practices should shore up profits for the Indian non-life insurance industry.

On the global stage, GIC Re is now aiming for leadership status in the Afro-Asian region. Excerpts from an interview:

By how much have reinsurance rates hardened since the natural disasters last year?

The international reinsurance rates for catastrophe losses hardened mainly because of the hurricane losses in the Gulf of Mexico in 2005. As re-insurers were not getting adequate retrocession protection (the amount of risk that a reinsurance company reinsures or the amount of a cession which the reinsurer passes on), they had to raise the rates. For the US insurance companies as also for insurance companies in other areas where such catastrophic losses have taken place, the increase has been substantial.

India has had severe monsoon and flood losses and hence the impact on reinsurance terms was similar to reinsurance companies seeking retrocession protection. Insurance companies which have paid losses in India have also suffered similar rise in reinsurance cost, but very moderate.

What were the total losses from Mumbai floods and what was the impact on GIC?

Apart from the loss of lives and property in the Maharashtra floods last year, the economic losses were also huge. The insured losses were initially put at Rs 4,000 crore which subsequently came down to Rs 3,000 crore. Of this, GIC has so far paid out Rs 575 crore.

What is the proposed capacity of the natural catastrophe pool? How far have the discussions progressed?

A nat cap pool (natural catastrophe pool) was proposed to cushion the national general insurers against rising international reinsurance rates in the light of natural disasters, especially in the Gulf of Mexico in 2005. The hurricanes in Gulf of Mexico in the US in 2005 cost the global insurance industry claims of over $40 billion. However, as Indian insurance industry was able to get catastrophe protection on reasonable terms, we are not in a hurry currently. It requires some more data collection and analysis. Therefore, it will take some time for a viable policy solution to emerge.

Has your health reinsurance department received any fresh proposals?

We have received quite a few fresh proposals, from both the domestic as well as foreign companies and we are working on them.

In the domestic sector, we have reinsured the first standalone health insurer (Star Health and Allied insurance). We have also worked on the health portfolio of one public sector company and are being approached by others as well.

Considering the prevailing loss ratios in this line of business in the domestic market, we are treading cautiously. However, with the free-price regime around the corner, we hope to see more appropriate levels of premium being charged with better underwriting standards being employed.

With respect to foreign proposals, we have accepted a couple of offers from countries where health insurance has been doing reasonably well and where strict underwriting standards are being followed. We plan to continue to write such business with a steady pace and gather experience with time.

What is the impact of the recommendation from IRDA's reinsurance committee to reduce the limit of obligatory cessions to GIC from the current 20 per cent?

For the domestic industry, the 20 per cent obligatory cession is a matter of comfort and a source of reassurance to the insured. Besides, it is also a tool in the hands of the regulator to optimise retention within the country.

What are your overseas expansion plans?

GIC is positioning itself as the lead reinsurer in the Afro-Asian region and other emerging economies. We are also exploring the possibility of establishing contact offices in eastern, southern and western Africa. Africa would be a focal point for GIC Re in the years to come.

In UAE, GIC has got permission from the ministry for a branch. Efforts are on to seek regulatory permission so that the London representative office can start functioning as a full-fledged one from January 2007. The corporation currently has representative offices in London, Moscow and Dubai.

What are the challenges that the insurance industry will face in a free-price regime?

The free-price regime will see the development of underwriting, actuarial sciences and risk management. These areas did not receive the desired impetus due to the administered nature of the market, more so in areas like motor insurance which have been traditionally loss making.

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