The Hindu Business Line : GIC foreign premium may be under $500 m this fiscal

At a glance
International premium receipts come from both treaty and facultative reinsurance business.
Focus areas are also western and eastern Europe, Africa, West Asia and South Asia.

Bangalore March 22

Foreign premium receipts of the national reinsurer, General Insurance Corporation (GIC) is likely to be about slightly under $500 million for the current financial year.

GIC officials said till February, the company had earned reinsurance premiums from international business of about $400 million. Substantial volumes of the premium inflows came from participation in coinsurance along with some of the global reinsurance players. Indian insurers have treaty arrangements with Swiss Re and Munich Re, the world's largest reinsurers.

Domestic premiums

Domestic premiums currently comprise a little over 75 per cent of GIC's premiums earnings, in its capacity as the statutory reinsurer. This was largely on account of mandatory ceding. All the primary non-life insurers in the country were expected to cede a minimum of 20 per cent to GIC. From April this year, however, after migration to a market pricing mechanism, GIC's would come down to 15 per cent and from next year further down to 10 per cent.

The reduction was unlikely to impact GIC's premium flows, the officials said. This was because GIC has already become an aggressive international player, focussing on premium from global markets.

The GIC General Manager, Mr R. Chandrasekaran, said, "We have experience in the international markets and we will take full advantage of it." GIC's international premium receipts came from both treaty and facultative (Fac) reinsurance business.

Treaty reinsurance

Treaty reinsurance pertains to agreement between the reinsured company and the reinsurer usually for one year or longer. Facultative reinsurance or Fac Re is an arrangement where the ceding insurer offers individual risks to a reinsurer, who has the right to accept or reject each risk.

GIC currently receives large volumes of its reinsurance business from members of the South Asian Association for Regional Cooperation (SAARC) bloc countries. But GIC's focus areas are also western and eastern Europe, Africa, West Asia and South Asia. GIC already has offices in Moscow, London and Dubai.

Given its current level of capitalisation, GIC is in a position to write international business in excess of $3 billion. GIC, as of last financial year, had a net worth of over Rs 4,800 crore. The paid-up capital is Rs 430 crore and reserves comprised about Rs 4,400 crore.

At the current exchange rates, the GIC's capitalisation is in excess of $1 billion.

The sources said that GIC has been able to maintain this level of capitalisation, despite depreciation in some of its investments both with in the country and outside.

But GIC is not alone in accepting inward reinsurance. Domestic primary insurers, Oriental Insurance Company Ltd and New India Assurance Company Ltd were also beginning to accept foreign reinsurance contracts, from East Asia. Premium receipts from reinsurance was already close to about 10 per cent of their gross premium flows so far during the current year.

Most of the inward premiums receipts were, however, only on a Fac Re basis, the sources said. The premium flows were mostly from South and South East Asian countries where some aviation and property risks were ceded to Indian insurers, who are the preferred reinsurers in the region.