GIC Re plans to raise ₹750 cr via bonds for nuclear insurance pool

National re-insurer General Insurance Corporation (GIC Re) plans to issue insurance-linked bonds to raise ₹750 crore for creating capacity for the proposed Indian Nuclear Insurance Pool.

After breakthrough in the US-India civil nuclear deal, the government has asked GIC Re to ensure that the pool is operational immediately.

According to the Nuclear Lability Act, the pool’s capacity has to be around ₹1,500 crore as the liability per incident is capped at the amount. However, the four public sector general insurance companies — New India Assurance, Oriental Insurance, National Insurance and United India — and the national re-insurer GIC Re can only pool in capacity of around ₹750 crore based on their overall net worth. GIC Re plans to issue insurance-linked bonds to raise the additional ₹750 crore but the whole process is likely to take at least six months. However, in the meanwhile, the government is likely to extend support in the form of a sovereign guarantee to ensure insurance is available to nuclear suppliers, said a senior GIC Re official. The nuclear insurance pool is critical to take care of the liability component in the event of an accident. Under nuclear civil liability law, besides the operator, suppliers are also liable if an accident occurs and compensation of up to ₹1,500 crore will have to be paid in case of a mishap involving a nuclear plant.

The four public sector general insurers and GIC Re will be part of the pool.

G Srinivasan, Chairman and Managing Director of New India Assurance, the largest domestic general insurer, said the broad contours of the structure of the pool have been decided with the five companies bringing in ₹150 crore each.

The nuclear insurance pool will not have the support of foreign re-insurers as the government has made it clear that the facilities of the nuclear plants are not open to inspection, the GIC Re official said. Also, private general insurance companies will not be participating in the initial pool formation.

Srinivasan said the size of the pool of ₹1,500 crore is commensurate with the liability and the premium rates, which are still being worked out, will be in proportion to the risk insured. At present, nuclear reactors in India only have insurance cover for zones that are outside the area of radiation and reactors. The pool will provide a cover for both hot zones (radiation and nuclear reactors) and cold zones (outside reactor areas).

Praveen Vashista, Chairman of Howden Asia, said domestic insurers have in the recent past set up the terror insurance pool without the support of foreign re-insurers and it has been very successful.

Following the withdrawal of insurance and reinsurance capacity by foreign re-insurers for terrorism risk in the international market post 9/11, all the non-life insurers in India, along with the GIC Re, established the Terrorism Pool in 2002 to cover property damage and consequential loss arising out of any terror strike.

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