The Hindu Business Line : GIC’s statutory business share to be reduced to 10%

Snapshot
The reduction implied that domestic insurers’ mandatory ceding would be only 10 per cent to GIC, before placing it with other global reinsurers.
Global Reinsurers were beginning to find the domestic market attractive in view of the low losses and regulatory environment.

C. Shivkumar

Bangalore, Feb. 1

As part of the continuing reform in the domestic non-life insurance sector, the statutory share of the national reinsurer, General Insurance Corporation is to be reduced to 10 per cent beginning from the next financial year.

GIC’s statutory share was reduced to 15 per cent in April 2007, after the insurance regulator, the Insurance Regulatory and Development Authority (IRDA), migrated the domestic non life insurance sector to a free pricing regime. GIC’s General Manager, R. Chandrashekaran, confirmed the development. “The reduction will take effect from April this year.”

The reduction implied that domestic insurers’ mandatory ceding would be only 10 per cent to GIC, before placing it with other global reinsurers either through the treaties or through the facultative route.

Facultative Reinsurance is an arrangement where the reinsurer has the right to accept or reject individual risks.

The reduction comes even as the domestic insurance sector is faced with severe pricing pressures. Tariffs for low loss fire and engineering risk covers are down by at least 75 per cent. But reinsurance tariffs were little impacted by the southward momentum in market prices. Moreover despite the reduction in statutory acceptances, GIC has managed to grow its premium base last year. In financial year 2007, GIC’s net premium accretions grew to Rs 6,420.87 crore, about 51 per cent over the previous year. At least 21 per cent of the premium accretions came from its global reinsurance business.

Revenue impact

This year however it could be different. Mr Chandrashekaran said, “There will be some impact on revenues.” But GIC is expected earn some non-core revenues. These revenues were from administering the Motor third party pool. GIC’s commission is fixed at 5 per cent of the gross premium accretions to the pool.

But high-ranking PSU insurance officials said that despite the reduction in statutory business, more companies are expected to make a beeline for the GIC reinsurance window in view of the business growth.

Global Reinsurers were beginning to find the domestic market attractive in view of the low losses and regulatory environment. GIC’s competition in the country was from global players like Swiss Re and Munich Re.

Consequently GIC proposed to further expand its international business, to hedge against any fall in revenues from the domestic markets. GIC is currently rated at “A (Excellent) by international Insurance rating agency A M Best. The rating is essential for making a global presence, the sources said.

In addition Mr Chandrashekaran said, “We have capital to support our international business.” GIC’s net worth in March 2007 was about Rs 5,982 crore or the equivalent of about $1.4 billion.

Besides, it has financial assets that were valued at Rs 22,906 in March 2007.

Sources said that during this financial year, GIC had also earned large profits from the equity markets. These profits were expected to further beef up the capital in the current year.