Reinsurance cover by GIC cut to 15% from April
Bangalore March 12 As part of the second phase of the insurance sector reforms, the statutory share of the national reinsurer, the General Insurance Corporation of India (GIC), is to be reduced to 15 per cent from April.
Under current regulations, the domestic non-life insurers — both public and private sector — are expected to mandatorily cede 20 per cent of their insurance risks to GIC. The mandatory cession would be further reduced to 10 per cent from April 2008, onwards.
GIC confirmed the reduction in the mandatory cession. GIC's General Manager, Mr R. Chandrasekaran, said, "This is an after effect of deregulation of the insurance markets in the country." GIC also favoured the reduction since it would reduce its liabilities in an environment of intense competition and falling premiums. This is despite the fact that 76 per cent of GIC's gross premium income came from within the country.
Till March 2006, gross premiums were a little over Rs 4,800 crore. Of this, around 82 per cent was from obligatory cessions. GIC is unfazed by the changed market situation. Mr Chandrasekaran said, "We have a global reinsurance experience of about 15 years. The reduction in cession will make little difference to our revenues."
Global presence
Besides, GIC has also expanded its global presence accepting inward reinsurance premiums. Last year, GIC had earned about Rs 400 crore by way of reinsurance. With focus on Eastern Europe, West and East Asia, GIC's global premium income is expected to be well over Rs 1,500 crore this year, the sources said
Private sector insurers
They said that the reduction in cession would now give greater flexibility in fixing tariffs for reinsurance support to domestic insurers in a deregulated environment. In fact, almost the entire private sector, despite the low capitalisation has been growing on the back of the reinsurance support provided by the statutory and global reinsurance since private sector's retention capacity limited by its net worth. For the first 10 months of the current year (April to January 07-08), private sector insurers earned premium income of Rs 7,329 crore. The combined capital of all the 8 per cent private sector insurers is barely Rs 3,000 crore.
Low retention capacity
Consequently, about 80 per cent of the business would still have to be reinsured, given the low retention capacity. As a result, GIC's premium income was expected to sustain the momentum in tandem with the growth in the industry. The industry has grown by 24 per cent this year over the corresponding period of the last year.
Moreover with the global reinsurers closing ranks, GIC, the sources said, would actually benefit in the deregulated environment. This was because even without reduction in tariffs, insurers would still have to take recourse to GIC for meeting their capacity requirements. The four public sector insurers have a much larger capital base of close to Rs 14,000 crore that gave them adequate retention capacity on their own.
Bangalore March 12 As part of the second phase of the insurance sector reforms, the statutory share of the national reinsurer, the General Insurance Corporation of India (GIC), is to be reduced to 15 per cent from April.
Under current regulations, the domestic non-life insurers — both public and private sector — are expected to mandatorily cede 20 per cent of their insurance risks to GIC. The mandatory cession would be further reduced to 10 per cent from April 2008, onwards.
GIC confirmed the reduction in the mandatory cession. GIC's General Manager, Mr R. Chandrasekaran, said, "This is an after effect of deregulation of the insurance markets in the country." GIC also favoured the reduction since it would reduce its liabilities in an environment of intense competition and falling premiums. This is despite the fact that 76 per cent of GIC's gross premium income came from within the country.
Till March 2006, gross premiums were a little over Rs 4,800 crore. Of this, around 82 per cent was from obligatory cessions. GIC is unfazed by the changed market situation. Mr Chandrasekaran said, "We have a global reinsurance experience of about 15 years. The reduction in cession will make little difference to our revenues."
Global presence
Besides, GIC has also expanded its global presence accepting inward reinsurance premiums. Last year, GIC had earned about Rs 400 crore by way of reinsurance. With focus on Eastern Europe, West and East Asia, GIC's global premium income is expected to be well over Rs 1,500 crore this year, the sources said
Private sector insurers
They said that the reduction in cession would now give greater flexibility in fixing tariffs for reinsurance support to domestic insurers in a deregulated environment. In fact, almost the entire private sector, despite the low capitalisation has been growing on the back of the reinsurance support provided by the statutory and global reinsurance since private sector's retention capacity limited by its net worth. For the first 10 months of the current year (April to January 07-08), private sector insurers earned premium income of Rs 7,329 crore. The combined capital of all the 8 per cent private sector insurers is barely Rs 3,000 crore.
Low retention capacity
Consequently, about 80 per cent of the business would still have to be reinsured, given the low retention capacity. As a result, GIC's premium income was expected to sustain the momentum in tandem with the growth in the industry. The industry has grown by 24 per cent this year over the corresponding period of the last year.
Moreover with the global reinsurers closing ranks, GIC, the sources said, would actually benefit in the deregulated environment. This was because even without reduction in tariffs, insurers would still have to take recourse to GIC for meeting their capacity requirements. The four public sector insurers have a much larger capital base of close to Rs 14,000 crore that gave them adequate retention capacity on their own.
Source: The Hindu Business Line (C. Shivkumar )
