For the first time, global reinsurers have turned their back on primary general insurers in the country by under-subscribing treaty obligations. That means general insurance companies in India will have to absorb liabilities themselves and will require more capital.
Highly placed officials said that the under-subscriptions were mostly in marine hull, marine cargo and miscellaneous accidents categories. This business accounts for almost 20 per cent of India's general insurance. Marine Hull refers to shipping business. The officials said that the under-subscription in all these businesses varied from 25-35 per cent. At least 55 per cent of private sector business and about 25 per cent of public sector business is ceded to cross-border reinsurers.
Reinsurer under-subscription, the officials said, is largely on account of low risk premiums quoted by domestic general insurers. Since deregulation, the domestic general insurance markets have witnessed steep undercutting of risk premiums, going down by as much as 80 per cent since 2007.
Domestic insurers are likely to face capital stress in the coming weeks, already partially evident from the reduced business intake. For the first 10 months of the current year, two of the largest private sector general insurers, ICICI Lombard General Insurance Company Ltd and Bajaj Allianz General Insurance Company Ltd showed negative growth rates of 10.18 per cent and 8.22 per cent respectively. The gross premiums collected by these two insurers were Rs 2,730 crore and Rs 2,032 crore respectively for the period.
It appears some insurance lines covered by annual treaties are likely to be restricted further. Most of India's cross border treaty reinsurance placement is with either Munich Re or with Swiss Re although there are other smaller treaty reinsurers that include Hannover Re and to some extent Lloyds group.
Officials of Bajaj Allianz said, “It has been found that some new reinsurer would offer their support to the market whereever participation was restricted / reduced by an existing reinsurer, as witnessed in the FY 09-10.”
Treaty negotiations
Treaty negotiations this year are yet to be concluded. Reinsurance arrangements are normally expected to be completed at least 45 days before the beginning of the next financial year. ICICI Lombard's Head, Reinsurance, Mr Rajiv Kumaraswamy, said, “We have already submitted the draft reinsurance programme to the regulator. We are now in discussions with the reinsurers for finalising our programme for the next year.”
But with global capacity under pressure, domestic companies are reconciled to looking for spot market reinsurance placement in the form of Facultative Reinsurance (an arrangement where ceding insurers offer individual risks to a reinsurer, who has the right to accept or reject each risk). Spot placements would essentially translate into higher costs for reinsurance wiping out the little commission that primary insurers earned through such cession.
Highly placed officials said that the under-subscriptions were mostly in marine hull, marine cargo and miscellaneous accidents categories. This business accounts for almost 20 per cent of India's general insurance. Marine Hull refers to shipping business. The officials said that the under-subscription in all these businesses varied from 25-35 per cent. At least 55 per cent of private sector business and about 25 per cent of public sector business is ceded to cross-border reinsurers.
Reinsurer under-subscription, the officials said, is largely on account of low risk premiums quoted by domestic general insurers. Since deregulation, the domestic general insurance markets have witnessed steep undercutting of risk premiums, going down by as much as 80 per cent since 2007.
Domestic insurers are likely to face capital stress in the coming weeks, already partially evident from the reduced business intake. For the first 10 months of the current year, two of the largest private sector general insurers, ICICI Lombard General Insurance Company Ltd and Bajaj Allianz General Insurance Company Ltd showed negative growth rates of 10.18 per cent and 8.22 per cent respectively. The gross premiums collected by these two insurers were Rs 2,730 crore and Rs 2,032 crore respectively for the period.
It appears some insurance lines covered by annual treaties are likely to be restricted further. Most of India's cross border treaty reinsurance placement is with either Munich Re or with Swiss Re although there are other smaller treaty reinsurers that include Hannover Re and to some extent Lloyds group.
Officials of Bajaj Allianz said, “It has been found that some new reinsurer would offer their support to the market whereever participation was restricted / reduced by an existing reinsurer, as witnessed in the FY 09-10.”
Treaty negotiations
Treaty negotiations this year are yet to be concluded. Reinsurance arrangements are normally expected to be completed at least 45 days before the beginning of the next financial year. ICICI Lombard's Head, Reinsurance, Mr Rajiv Kumaraswamy, said, “We have already submitted the draft reinsurance programme to the regulator. We are now in discussions with the reinsurers for finalising our programme for the next year.”
But with global capacity under pressure, domestic companies are reconciled to looking for spot market reinsurance placement in the form of Facultative Reinsurance (an arrangement where ceding insurers offer individual risks to a reinsurer, who has the right to accept or reject each risk). Spot placements would essentially translate into higher costs for reinsurance wiping out the little commission that primary insurers earned through such cession.
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