GIC Re turns focus on pruning loss-making segments

Ashok Kumar Roy, Chairman and Managing Director of General Insurance Corporation of India(GIC Re), the sole national reinsurer, says the company is weeding out all loss-making portfolios and has shrunk its business in the overseas market to focus on profitability. In an interview to Business Line , Roy says he is hopeful of an upswing in performance this year. Excerpts:

Last year, GIC Re had witnessed some stress in financial performances. Will this year be a better one?

Last year was a very good year for reinsurers with no major catastrophes, except Hurricane Sandy. As we can already see from the results of the major reinsurers, it has been exceedingly good.

As for GIC Re results, our accounts are under compilation, but the indications are good and we are likely to make thin underwriting profits this year.

The Financial Services Secretary has said that a Rs 2,000-crore insurance fund is being formed to support domestic refineries that process crude oil imported from Iran. What is happening on it?

This is still being discussed. Various options are being tried and evaluated and finally what will emerge is not yet known. It will take another fortnight or so for things to get finalised.

How is the terror pool doing?

The terror pool limits have been raised. They are now at Rs 1,000 crore (an event in one location) as against Rs 750 crore earlier and the kitty available in the pool has substantially gone up. It has proved to be a highly profitable venture and the pool is at a very comfortable stage.

What is happening on the formation of a nuclear pool?

There has been no further development. The main issue is regarding the inspection of the nuclear facilities. That is yet to be resolved. We will not be able to join the international pool if this provision stays.

Insurers have demanded that obligatory cessions should be dismantled, are you in favour of this?

The industry is asking for preferential treatment, and its argument is quite well founded because not all companies are performing the same way. So those who are performing better are saying that they should be compensated better.

Today, each insurer is getting compensated in the same way; the minimum ceding commission that we are required to pay is so high that GIC Re is left with no surplus on this account. We have brought to the regulator’s notice that minimum commission should be brought down so that we are left with some margins for those companies who are performing better and we are hopeful something like that will come.

Overall, we are not making any profits in this segment, so it is actually a drag on our performance. We are happy that it has come down by 5 per cent so at least our losses in this account will be half.

Do you see increasing business from the life insurance sector now?

Yes, we are seeing a good opportunity and we are getting ready for that. With the new guidelines for life insurance by IRDA we are trying to take capacity so that the reinsurance business moves to us first and only after that if some further balance is there, it will go out.

Do you see a hardening of rates across segments? What is your view from a reinsurance perspective?

It is not happening currently but we need to consider it. If you look at the overall market, combined ratios (operating expenses plus claims as a percentage of premiums) are in the range of 125 per cent which indicate that prices are 25 per cent lower than what they should be. The overall prices need to improve by at least 25 per cent because the basic fundamental rule for any insurance company to work appropriately is it should always target its combined ratios at 100 per cent. In the Indian market, for the last seven years it has been around 125 per cent. That means the industry is not taking the lesson and is subsidising the insured which it is not supposed to and it has no reason to. We need to increase the rates in general to lower the combined ratios and that is not happening. It shows the level of immaturity of the market.

We have brought it to the notice of all insurers. We have put the data before them and I am sure similar pressure is coming on them from their shareholders.

Has your scale of operations come down?

Yes. We are very positive that we must make profits from our operations so we are doing everything required for that. This year, we have been consolidating, we are pruning all loss making portfolios, so actually we have shrunk our business in the overseas market. This year our international and domestic business will be 50-50. We have absolute clarity that we are not following top line and the impact of that would be that our performance will see an upswing.

> deepa.nair@thehindu.co.in

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