The Hindu Business Line : Reinsurance rates under pressure

Bangalore, Sept 24 With the collapse of the world’s largest insurance company, American International Group, reinsurance premiums have come under pressure in India.

Highly placed sources said that this year, ‘excess of loss’ reinsurance rates have hardened. Excess of loss or XL are entered for losses beyond the prescribed limits in treaty arrangements.

Currently, XL reinsurance as a component of the primary insurance premium is about 10 per cent. Last year, it was just 6 per cent, sources said. Rates for XL reinsurance currently ranged between 0.1 and 0.15 per cent per thousand.

However, sources said that most domestic insurers are still covered by treaty arrangements that are valid till March 2009. “These rates will not change. Perhaps, changes will take place when they come up for renewal next year, depending on the extent of investment losses reinsurers have taken,” they say.

Aviation rates harden

Spot reinsurance covers for aviation are hardening. Aviation rates are as high as 0.2 per cent despite the fact that the Asian region has few major claim events this year.

The AIG collapse is onne major reason for the hardening of the XL and Fac Re rates. Reinsurance by AIG normally is through the XL and Fac Re routes. Stiff bail-out terms and investment losses have led to higher premium being charged by AIG.

rates are the losses posted by AIG.

Flocking to GIC

The hardening of international rates is driving more insurers to the national reinsurer, General Insurance Corporation (GIC), over and above the mandatory ceding of 10 per cent. Even in treaty arrangements, insurers preferred GIC . Bharati Axa General Insurance Co Chief Executive Officer Mr Milind Chalisgaonkar said, “Our reinsurance treaty arrangements are with GIC and will remain that way.”

The sources said part of the shift to GIC also due to the low deductibles in India. Deductible is the compulsory retention by insurers of a portion of the sum assured in a claim event. Globally this minimum is about $1 million. In India, it is only about Rs 10,000.

Another major worry cited for global reinsurers was the sharp fall in premiums after deregulation. The low domestic premiums were also one reason for the increased reinsurance component, the sources added.

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