The Hindu Business Line : Renewal of contracts — Global reinsurers unlikely to hike rates for India

AFTER a terrible year during which Indian non-life insurance companies faced huge losses due to a series of natural calamities, 2006 has begun by springing a pleasant surprise to them.

Much to their relief and contrary to their expectations, there appears to be no hardening of reinsurance rates even as negotiations are afoot to enter into fresh annual treaties with the global reinsurers.

"We are not seeing any major hardening or reinsurance rates. The initial feelers received suggest that the rates are likely to be around the same level as during the previous contract term," Mr M. Ramadoss, Chairman and Managing Director of Oriental Insurance, told Business Line.

He added that he had held several rounds of discussions with senior representatives of global insurance reinsurance companies, including the chief of Munich Re, during the current calendar year.

Indian non-life insurance companies had been expecting that reinsurance rates would firm up during 2006 since global reinsurers had faced heavy losses on account of a number of catastrophic losses such the series of hurricanes hitting the US coastal areas.

Mr Ramadoss said that while the fresh reinsurance year across the globe starts at the turn of each calendar year, Indian companies normally renew their contracts at the beginning of each financial year. "While our negotiations start at the turn of the calendar year, the actual contracts are renewed around April 1," he said.

Mr Ramadoss said that the prevalent view among reinsurers appear to be that the rates should be hiked only in territories which have witnessed losses and passed them on.

"The view appears to be that higher reinsurance rates should be charged only if there have been losses in the territory concerned. Therefore, rates for risks in the US have firmed up."

Mr Ramadoss, however, said that there would be some odd exceptions where the reinsurance deal would be struck at a higher rate. But most of them would be new relationships that were built up during the past couple of years.

"The reinsurance rates could be higher in cases where the renewals are for contracts that have been entered into for the first time during recent years."