GIC Re to keep off chronically bleeding exposures

GIC Re plans to stay away from consistently loss-making reinsurance treaties. This could reduce its net premium collection, especially from international operations. AK Roy, chairman, General Insurance Corporation, shares his perspectives on the reinsurance market with Aswathy Varughese and Megha Mandavia. Edited excerpts:

How has business been so far? What’s the road ahead looking like?
Our third-quarter numbers aren’t ready, but we expect a growth of over 15% year on year. Also, we foresee underwriting profit in this quarter as no major losses have taken place so far in the absence of catastrophic events. So we are hopeful of a very promising year.

What about international operations?
It’s doing quite well. This year we might see a decline in premium because we have weeded off a few consistently loss-making propositions. There has been a 25% decline in the net premium due to this, which may have a slight impact on our international business.

How much will the business come down by?
The overall business won’t decline, but there will be a slight reduction in growth rate. The overall business will grow.

What are the segments you are planning to stay away from?
That will be decided by the nature of treaties. Where we have been making losses consistently for many years, those may not be renewed.

Is obligatory business still loss-making?
It gives us volume but overall it gives us losses. We were exploring what is the right way to go about it.

A few months back, the finance ministry had given some directives to PSU insurers to refrain from loss-making businesses. Has that yielded results?
We have to look at this in perspective. The government is the owner of all four public sector general insurers. When it realised that the four are competing among themselves and driving down rates, they wanted to rectify the situation where losses were avoided. To be sure, we are in a competitive, dynamic environment where no decision can be taken by any company in isolation. We have to see how others are behaving; also, ensure we don’t go on losing money. It’s a difficult situation in which companies are operating today. And it all depends on the market dynamics and individual priorities.

What’s your sense on reinsurance rates going forward?
There are no single rates for reinsurance. It depends on the arrangement. If it’s a quota share, then whatever rates the market charges gets transferred to the reinsurer. If it is an excess of loss cover, then it depends on the level -- what is the underlying deductible and total slab of the exposure. Based on these factors, the rates are fixed. It keeps on varying depending on type of business, whom to cede, which country they are operating in and past data on losses. Overall the rates have been firm with an undertone of weakness except in marine, hull and marine cargo. Given that we did not have any major catastrophic events, the rates may go down.

What’s the perception of foreign reinsurers about India? If they are allowed to set up branches, will it increase competition?
Most of them are keenly watching. They are already operating here, but nobody has opened a joint venture partnership yet. That market is yet to be opened. It needs Parliamentary nod to open branches. So long as they will be regulated by the Insurance Regulatory Development Authority, it shouldn’t be a problem. Then we will have a level playing field.  When we have our branches overseas those branches are regulated by the local regulators.

What’s your expectation from the budget?
I hope there are tax breaks on profit from sale of equity. Tax incentives for individual lines of business will help penetration. If we are taxed on our capital gains, it will get reflected in the prices of products. This goes into the price mechanism of insurance products.

What will be the impact of implementation of risk-based solvency margin?
It will impact each company differently depending on the profile of the business. Companies which are underwriting risky business have to keep aside capital accordingly.

Do you think pricing of third-party cover is rationalised?
There is a strong demand from the industry that it should be hiked, which is reasonable. That formula only takes care of inflation and other changes in the environment. It doesn’t address the in-built gap which exists in pricing this cover. It is adequate when the last year’s prices are rationalised. In my view at one go, it should be hiked 40- 50% and then annually, going by formula.