The Hindu Business Line : GIC seeks to reinsure risks selectively

General Insurance Corporation of India (GIC Re) is seeking the right from the insurance regulator to selectively reinsure risks in the free price regime effective January 1. GIC Re plans to offer reinsurance only after suitable risk appraisal.

Fire, engineering and motor insurance are presently under tariff or a pre-determined premium structure and non-life insurance companies have to compulsorily cede a minimum of 20 per cent of their business to GIC Re. From January 1, market participants including GIC Re, are gearing up for a possible fall in the premium rates.

According to sources, GIC Re, like other foreign reinsurers, anticipates a situation where risks could be underwritten at very low rates. Come January, the reinsurer plans to follow a scheme of appraisal where the earlier claims history, risk management systems and the technology adopted by a company would determine the extent of reinsurance support. The corporation will also boost its IT systems and utilise risk-rating models for the same.

Sources said the Indian reinsurer anticipates a gradual phase-out of the 20 per cent obligatory cessions in the free-price regime. To combat the fall-out, GIC will shift its focus to international markets.

The Insurance Regulatory and Development Authority has also hinted at a possible reduction or a gradual phase-out of the 20 per cent obligatory cessions, said a source.

Fall in income?

With a fall in the premium rates in the open regime, GIC Re could see a decline in its premium income. Currently, the domestic portfolio accounts for 76 per cent of the reinsurer's gross premium income while the obligatory cessions form around 82 per cent (of the 76 per cent) of the GIC's domestic premium income.

GIC Re plans to double its efforts in the international market place and adopt a wait and watch policy in the Indian market, said the source.

The domestic reinsurer has now set its sights on several countries in the Afro-Asian region as well as emerging markets. The corporation is looking at potential tie-ups or even mergers and acquisitions with some insurance companies in the Afro-Asian region. The upgradation of GIC Re's representative offices to branch offices in London and Dubai are at an advanced stage.

Sources said the corporation might not go in for aggressive marketing in the domestic market in 2007-08.