Falling global reinsurance rates are likely to ensure that general insurance premiums of large corporates will not see a sharp rise this year. Reinsurance premium rates are expected to decline this year even though India has seen high economic losses due to catastrophes such as Cyclone Hudhud and Jammu and Kashmir floods.
Insurers apportion a part of their risk to re-insurers by sharing a slice of their business (premium) with the latter so that they don’t have to bear the entire loss in case of an adverse event.
Big catastrophesAccording to data from global re-insurer, Munich Re, in terms of overall damage and losses, India witnessed the world’s largest and third largest catastrophes of 2014 (Cyclone Hudhud in October and the Jammu & Kashmir floods of September).
The premium paid by large corporates, which typically take mega risk insurance policies to cover their industrial assets, is largely reinsurance driven.
Ashok Kumar Roy, Chairman and Managing Director of General Insurance Corporation, the country’s sole domestic re-insurer, said internationally reinsurance rates have softened by 20-25 per cent amid overcapacity as global re-insurers did not see significant losses during the year. This could lead to softer rates when the reinsurance contracts for Indian general insurers come up for renewals in April.
G Srinivasan, Chairman and Managing Director of New India Assurance, the country’s largest domestic general insurer, also said that he does not anticipate a hardening in reinsurance rates despite high catastrophe losses in the Indian market due to fall in re-insurance rates globally.
Munich Re said that insurance industry losses from natural catastrophes declined 21 per cent to $31 billion last year.
Cyclone Hudhud, which hit India’s east coast in October 2014, caused $7 billion in economic damages. However, while Hudhud was the costliest single natural catastrophe globally in 2014, low insurance penetration in India meant that just $530 million was insured.
Gurpal Dhingra, Director of Prudent Insurance Brokers, said that risk awareness and insurance penetration are still abysmally low in India compared to more developed nations. The September floods in Kashmir caused estimated losses of a little over $5 billion but insured losses were a mere 6.5 per cent of that.
In comparison, the proportion of insured losses to overall losses in countries such as Japan was much higher at 52.5 per cent for winter damage, 74 per cent for storm damage in the US and 80 per cent for severe storm damage across Western Europe in June.