NEW REINSURERS IN THE GULF TURN UP THE HEAT ON GIC

The oil boom has resulted in billions of dollars flowing into reinsurance, creating new capacity in the Middle East, which will provide stiff competition to General Insurance Corporation (GIC). GIC has had a leading position in the Afro-Asian region.

Speaking to ET, GIC chairman Yogesh Lohiya said that in the past 8-9 months alone, four reinsurance companies have come up in the Gulf region. Each of these companies has a capital of over $500 million, which gives them enormous capacity to provide reinsurance support. According to Lohiya, the emergence of new capacity will have an impact on GIC’s reinsurance business.

“These companies are willing to go wherever there is business. While there are many companies which have a level of comfort with GIC, there are insurers who are always looking for lower price and higher commission,” he added. Lohiya said that although reinsurance prices were down, reinsurers could not keep rejecting business merely because international prices are low. GIC or GIC Re, as the company now refers itself, is the national reinsurer with whom all companies need to compulsorily reinsure. However, the mandatory reinsurance requirement is being gradually diluted and is expected to be waived in the long term.

In the Middle East, petro dollars are fuelling growth in construction activity, which is boosting demand for insurance and reinsurance. Only last week, the largest Islamic reinsurance company in the world opened operations in Dubai. The firm, ACR ReTakaful Holdings, was promoted jointly by Dubai Group, Malaysian Khazanah Nasional and Singapore-based Asian Reinsurance. ACR ReTakaful Holdings was set up with a paid-up capital of one billion dirhams ($300 million).

Traditionally, GIC’s inward reinsurance business has been from developing countries in the Afro-Asian region. These were from insurance companies, which were too small for players in European markets to take notice of. Also, since the European markets had limited knowledge of the risks, the prices tended to be higher.

The softness in the reinsurance market is providing added impetus to the vigorous competition the domestic market is seeing, post-detariffication. According to Lohiya, because of the drastic fall in rates, most lines of business have seen a reduction in premium. “Were it not for the motor third-party liability, premium for many companies would have been lower,” said Lohiya. According to Lohiya, it is difficult to forecast when the soft cycle will end.

Although recent calamitous events — the cyclone in Myanmar, and earthquake in China — have not resulted in major insured losses, the events have reminded reinsurers of the weather risks in the region. Meanwhile, GIC is exploring opportunities outside property insurance. The corporation has for long been eyeing reinsurance for the life insurance business. It has recently held talks with Hannover Re to have a life reinsurance business in India. Hannover Re, one of the large reinsurers, is eyeing a presence in India.

Source:
Mayur Shetty, Mumbai
The Economic Times