A) Introduction:
From 16th January 2017 IRDAI’S Gazette Notification has implemented Reinsurance Regulations with immediate effect and licenses are cleared for Branches of Global Reinsurers as well as Indian Professional Reinsurer ITI with a Paid-Up Capital of Rs.5000 MLNS for each. Indian National Reinsurer GIC Re’s Financial Highlights Show Paid Up Capital of Rs. 4.3 BLNS and Financial Net Worth of Rs. 383 BLNS for the year 2015-16
From 1st April 2017, all Renewals of Reinsurance Treaties and Fac Res of all Indian Insurers will have to be placed with prescribed priorities with GIC Re, ITI and branches of Global Reinsurers as licensed reinsurers from 1st January 2017.
Existing participation of Cross Border Reinsurers who do not have branches in India may be left to get renewals only after exhausting placements with all reinsurers in India as under who were Cross Border Reinsurers but who are now licensed Reinsurers in India:
MUNICH RE, SWISS RE, SCOR, XL CATLIN, HANNOVER RE, REINSURANCE GROUP OF AMERICA- RGA AND LLOYDS. This list may have new entrants with branches of reinsurers in near future.
Thus Indian Insurance Market is all set to be a REINSURANCE HUB OF ASIA AND AFRICA from 2017 onwards.
Indian Reinsurance Market with Reinsurance Premium of US$ 2.50 BLNS in 2016-17 has potential of 15% to 20% growth in 2017/18. Agricultural Insurance Premiums under the PMFBY are well set to increase from Rs.36 BLNS in 2015-16 to Rs.200 BLNS (US$ 2.90 BLN) in the year 2017-18 with approx. 70% as Reinsurance Premium of Rs.140 BLNS – US$ 2.05 BLNS. Thus Reinsurance Premiums will be around US$ 4 BLNS for all classes. Perhaps this is the right time to review the historical growth of Professional Reinsurers in India so far.
B) Professional Reinsurers In India:
Life Insurance of Indian Market has great potential to grow from US$ 56 BLNS in 2014-15 to US$ 70 BLNS by the year 2019. Reinsurance requirements generate Reinsurance Premium of less than 2% of these premiums for the entire Indian Market!
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However, Reinsurance of Life Insurance business in India is with Minimum Percentage of Gross Direct Life Premium of Rs.3670 BLNS (US$ 52 BLNS). The estimated premium for 2017-18 are Rs. 4683 BLNS or US$ 67 BLNS! But Reinsurance by life Insurers is around 1% after 5% Obligatory Cessions to GIC Re which may or may not continue in near future!
However Non-Life Insurance Premium is Indian Rs.1200 BLNS (US$ 17 BLNS) for 2016-17 and is likely to be around Rs.1450 BLNS (US$ 20.7 BLNS) in 2017-18. Reinsurance Premiums are likely to be 15% – 18% of Gross Non-Life Premiums. With rapid Economic Developments in India the future of Indian Insurance Market appears to be with better prospects for Non-Life Reinsurers to be innovative, creative and progressive.
The future is to be INVENTED rather than PREDICTED.
The year 2016 is the boundary line between the PAST and
the FUTURE!
1) Historical Evolution of Professional Reinsurers in India 1900 to 1947.
At this Historic Period of Greater Significance let us review historical evolution of Professional Reinsurers in India: –
Background of Indian Market Scenario: Between 1900 AD and 1947 Non-Life insurers of India managed Reinsurances with major Global Reinsurers like Munich Re, Swiss Re, Hannover Re, Cologne Re, Allianz, Mercantile & General Re etc. All these reinsurances were handled by UK-Europe’s Professional Reinsurance Brokers like Sedgwicks, Willis, Greig Fester, C T Bowring etc. along with Indian Reinsurance brokers like J.B.Boda, M.B. Boda etc.
The end of the second World War in 1945 set a new stage:
The World Bank, the IMF, The Bratton – Wood Exchange Rate System governed the International Trade and Transactions of Reinsurances. India being a member of the UNO from inception got involved in all these changes.
- The COMECON countries of Eastern Europe under USSR did not follow the IMF and Bratton Wood Exchange Rate System. They remained outside UNO’S frame and followed their own exchange rates equating with Russian Rouble.
- First Indian Professional Reinsurer – India Re wrote business from both the western European and COMECON countries in ‘give’ and ‘take’ relationships till the WTO Treaty of 1st July 1995!
- After 1995 all countries of the world uniformly follow the World Bank, IMF and Bratton Wood Exchange Rate Systems for all International Trade and Transactions.
2) Evolution of Indian Professional Reinsurers – 1956 to 1972.
With this background let us review how Indian Professional Reinsurers evolved and grew with stability and strength from the 1956 onwards.
Indian Professional Reinsurer – The India Re 1956 to 1972.
After independence India’s Economy had Industrial developments and agricultural growth with constructions of canals, building of dams and Irrigation Projects. With Five Year Plans,there were all round economic developments. All these gave rise to new era of Non-Life Insurers and reinsurers to meet the new challenges of changing times.
Life Insurance was nationalized with the creation of the PSU giant Life Insurance Corporation of India in 1956.
In the same year of 1956 all General Insurance Companies Co-operatively formed the first Indian Professional Reinsurance Company in India namely India Re. Thus Professional Reinsurers complete 60 years in the year 2016.
India Re is the first Indian Professional Reinsurance Company and had built a global reinsurance portfolio as well as catered to domestic reinsurance Treaties and Facultative Reinsurances of all classes.
India Re’s shareholders – all Indian Insurers agreed to give 10% Agreed Cessions of all classes of General Insurance to India Re and India Re emerged as a National Reinsurer. New India’s Mr. A.D. sharraff was the chairman of the Board and Mr. R.M. Desai (GM) Mr. S.K. Desai (Manager) and Mr. Paresh Majumdar (Dy. Manager) played the lead role to make India Re a reputable International Reinsurer since early 1960s.
In the field of Professional Reinsurance Broking the legendry Grand Father of Indian Reinsurance Broking Mr. J.B.Boda started his company in July 1943 and became a well-known reinsurance broker with co-broking links in the London Market with Carpenter Borrowing and later with Guy Carpenter. Afro-Asian Reinsurance Broking has been the main domain of J.B.Boda.
With technological expertise and rich experience J.B. Boda successfully competed with UK from Reinsurance Brokers like Willis, Sedgwicks, Greig Fester etc.
India Re became a reputed Indian Professional Reinsurer writing Indian and International Reinsurances from U.K., Europe, Africa Middle East and Far East.
From 1961-62 onwards Oriental’s Indian Guarantee also started playing Professional Reinsurer’s role.
In 1962 Statutory Cessions of 10% of all classes of General Insurance were provided for Indian Guarantee and 10% agreed cessions to India Re become 10% Statutory Cessions. Thus, in all 20% Statutory Cessions were provided to both the Indian Professional Reinsurers.
These continued upto the end of 1972.
India Re and Indian Guarantee supported Domestic Market of General Insurance and conserved Foreign Exchange by providing Automatic Underwriting Capacity to Indian Insurers.
India Re provided an Exchange Hall for on the spot transaction of all facultative reinsurance daily by Indian Insurers & Brokers with Reinsurers.
3) The Era of Nationalization 1st January, 1973 to 31st March, 2001.
On the Eve of Nationalization, India won diplomatic and military victory in the 1971 Indo-Pak war which resulted into the liberation of East Pakistan with the birth of the nation of Bangladesh.
Indian Insurance Industry and GIC played a vital role in the reconstruction of Insurance Industry of Bangladesh after the war. The economic co-operation between India and Bangladesh illustrated the maturity of GIC as Reinsurer of India with a supportive role to revive friendship and build Reinsurance relationship with the Insurance Industry of Bangladesh.
During this period of 28 years from 1st January, 1973 to 31st March, 2001 Indian Economy experienced rapid
developments with far reaching impacts on India’s Insurance and Reinsurance capabilities with Mega Risks emerging as under:
- Oil and Energy Risks of ONGC for Offshore/Onshore exploration of Oil and Gas all over India.
- Oil pipelines from Bombay High to Mathura refinery.
- Petro-Chemical complexes such as Reliance at Patal Ganga, Hindustan Petroleum at Baroda, etc and Asia’s largest oil refinery built by Reliance at Jamnagar.
- Space Research of ISRO and the Launching of Commercial Satellite with Mega Risks Insured in India and Reinsured by GIC and Specialized Western Reinsurers in USA and Europe.
Mega Risks with limits more than Rs. 15000 MLNS Any One Risk limits came up in the growing economy of India as a result of all these developments.
With India Market’s Reinsurance Underwriting limits of Rs. 4500 MLN PMLS or Rs. 15000 MLN TSI around 100 plus Mega Risks have come up with limits upto Rs. 50000 MLNS. These Mega Risks had PEAKS of Large Limits above Indian Market overall capacity of Rs 15000 MLN and these were reinsured by the way of PEAK risks FAC RI XL by GIC.
By the close of 20th Century Indian Market Reinsurer’s reputation grew Internationally and the volume of Reinsurance business also was well set to grow fast and with bottom-line profitability.
GIC also became big brother as reinsurer of SAARC countries.
Munich Re, Swiss Re, Victory Re, Mercantile and General Re, Franconia Re, Cologne Re, Ingosstrakh etc. were participants on Indian Reinsurers Reinsurance Treaties and FAC Re Inward Foreign Reinsurances of Indian Reinsurers. Japan’s Insurers like Taisho Marine, Tokio Marine, Kyoei Mutual, Toa Re etc also ceded business to GIC.
The Era of Liberalization – N – Globalisation : 1991 onwards and Transition of Indian Economy:
The historical developments of Perestroika and Glasnost in USSR, President Gorbachov’s steps to dismantle Communist Experiment and shift towards Capitalism ended the COLD WAR ERA. The Berlin wall was broken and a new era of New World order began. The trends of Globalisation ended the First – Second – Third world classifications of world economies into Most Developed, Developing and Least Developed Economies according to the Brandt Line.
CAPITALISM was seen as prosperity unequally shared with unequal talents and skills of people to be most prosperous. COMMUNISM was seen as Poverty equally shared with restrictive – prohibitive trends to achieve levels of material comforts.
SOCIALISM was seen as Planning Distribution of wealth with short falls in the creation of wealth.
Globalization and Liberalization changed all these and a Borderless world of all Economies was seen emerging where all people of the world had all the ways open for Industrial and Agricultural Developments within each economy with international co-operations!
This changed the world order.
- The Gulf war I and II impacted the new world order.
- Terrorism appeared as a threat – a negative force! Insurance and Reinsurance world over had to cover Terrorism with a new threat. Terrorism became a Manmade Catastrophe.
- 1993 Bomb Blast in Mumbai became a big event of Terrorism! Indian Market Insurers and Reinsurers faced the challenges of Terrorism.
Thus by the end of the Millennium Indian Insurers and GIC as Indian Reinsurer were well set to make a way of progress out of all the hurdles.
New Era of Economic Reforms in India under foresighted plans of Dr. Manmohan Sigh as Finance Minister of P.M. Mr. Narsimha Rao radically changed the Economy from Socialistic / Communistic Idealism to Realism of Capitalism in line with USSR. Private Sector became the engine of Economic Growth by the end of 20th Century!
The 21stCentury began with two mega events viz. the Bhuj
Earthquake of 26th Jan 2001 for Indian Market and
Terrorism Loss in New York- The WTC Attacks by terrorists on 11th Sep 2001. This Terrorism Loss covered all the classes of Property, Casualty, PA, MDLOP, Aviation Hull & Liability, Compensations to Workers clearing debris and many Life Insurance Losses- all of which amounted to approx US$ 88 Billions! This was more than 100% of Non Life Market Premium in UK and France. It is the largest insurance loss since the 11th Century. 19 major western Reinsurer’s became financial week and they minimized their involvements in Afro-Asian Markets with all kinds of restrictions. In this scenario, Indian National Reinsurer GIC Re emerged as a Leading Afro-Asian Reinsurer.
Restructuring Indian Insurance Industry from 1st April, 2001
The Insurance regulator IRDAI was created and with the Act of 1999 they were authorized to restructure and regulate Insurance Industry in India after denationalization.
- GIC was no longer a holding company after Denationalization. It was made the National Reinsurer of India as GIC Re. The Insurance Companies in India were to make 20% Obligatory Cessions to GIC Re. GIC Re also played the Role of Afro-Asian Reinsurer and supported Afro-Asian Markets as a Major Reinsurer with strength and stability.
- IRDAI opened the market for formation of Private Insurance Companies either with 100% paid up capital of Minimum Rs. 1000 MLN by the Indian Proprietors or in Joint Venture with Foreign Partner with not more than 26% share holding. This cap is increased to 49% with the New Government in 2014-15.
By 2015-16 there are 24 Life Insurance Companies- LIC and 23 Private Companies with a Premium of almost USD 60 BLNS.
And there are 19 Non-Life Insurance Companies, 5 Standalone health Insurance Companies. 4 Public Sector Insurance Companies, ECGC and AIC as specialized Insurers. Non-Life premiums amounted to USD 15 BLNS in 2015-16.
After the PMFBY Agricultural Insurance Premium increased from Rs. 36 BLNS in 2015-16 to Rs. 150 BLNS in 2016-17 and Rs. 200 BLNS in 2017-18.
Non-Life and Life Premiums are expected to be USD 90 BLNS or more by the year 2019.
Following chart illustrate Indian Insurance Markets Growth.
INDIAN MARKET DATA
Based on SIGMA Report of Swiss Re
Figures in BLNS
Density Penetration
Gross Direct Premiums Per Capita Premiums Insurance Premium
as % of GDP
Year Life Non Life Total Life Non Life Total Life Non Life Total
I.Rs. = US$ I.Rs. = US$ I.Rs. = US$ US$ US$ US$
2001 500.94 9.42 126.11 2.46 627.05 11.88 9.10 2.40 11.50 2.15% 0.56% 2.71%
2002 557.38 11.52 152.45 3.15 709.83 14.67 10.00 3.00 13.00 2.20% 0.60% 2.80%
2003 662.88 13.59 170.33 301 833.21 17.30 12.90 3.50 16.40 2.26% 0.62% 2.88%
2004 786.30 17.50 184.56 4.11 970.86 21.61 15.70 4.00 19.70 2.53% 0.65% 3.18%
2005 1,000.01 22.59 213.54 4.82 1,213.5 27.41 18.30 4.40 22.70 2.53% 0.61% 3.14%
2006 1,560.42 34.58 259.30 5.75 1,819.72 40.33 33.20 5.20 38.40 4.10% 0.60% 4.70%
2007 2,013.51 50.18 304.81 7.60 2,318.32 57.78 40.40 6.20 46.60 4.09% 0.61% 4.70%
2008 2,180.76 48.86 327.12 7.33 2,507.88 56.19 41.20 5.20 46.40 4.00% 0.60% 4.60%
2009 2,736.05 57.12 381.82 7.97 3,117.87 65.09 47.20 6.70 53.90 4.60% 0.60% 5.20%
2010 3,097.49 67.81 482.48 10.58 3,579.97 78.39 55.70 8.70 64.40 4.40% 0.70% 5.10%
2011 2,893.70 60.44 583.44 12.19 3,477.14 72.63 49.00 10.00 59.00 3.40% 0.70% 4.10%
2012 2,872.00 52.75 712.00 13.08 3,584.00 65.83 42.70 10.50 53.20 3.17% 0.78% 3.95%
2013 3,161.00 52.17 812.00 13.40 3,972.00 65.57 41.00 11.00 52.00 3.10% 0.80% 3.90%
2014 3,380.59 55.30 891.94 80.59 4,272.53 69.89 44.00 11.00 55.00 2.60% 0.70% 3.30%
2015 3709.49 56.68 988.52 15.1 4698.51 71.78 43.2 11.5 54.7 2.72% 0.72% 3.44%
Est.
2016 4,500.00 67.17 1250.00 16.41 5,750.00 83.58 44.00 12.00 56.00 2.80% 75.00% 3.55%
2017 5,000.00 1500.00 6,500.00
- C) National Reinsurer GIC RE with effect from 1st April 2001.
GIC Re’s track record as national reinsurer is brilliant from 2000/1 to 2015-16.
GIC Re’s financial highlights are reveled in following track records.
All figures in BLNS of Rs.
Eads Gross Earned Incurred Net PBT PAT Total Dividend Combined
Premium Premium Claims Commission Assets Ratio
2001-02 33 24 23 6 4 3 104 20 121
2002-03 45 32 27 9 3 3 117 22 116
2003-04 46 40 29 11 13 10 164 30 100
2004-05 51 44 37 12 8 2 196 30 113
2005-06 49 45 46 11 4 6 264 20 128
2006-07 74 53 36 17 18 15 285 72 101
2007-08 93 72 60 21 11 10 360 46 113
2008-09 81 78 62 17 18 14 300 65 103
2009-10 97 81 69 19 13 18 438 82 110
2010-11 117 95 86 19 12 10 497 48 111
2011-12 136 113 141 23 -25 -25 537 0 143
2012-13 151 133 109 29 24 23 599 109 107
2013-14 147 136 121 24 23 23 670 105 110
2014-15 152 136 119 28 28 27 781 126 109
2015-16 184 152 129 35 30 28 797 200 107
Financial Highlights
Financials
2015-16 2014-15
Paid up Capital 4 4
Net Worth* 3823 411
Total Assets* 795 780
Free Reserves 144 125
Technical Reserves 295 270
*includes fair value change account
Business & Financial Performance
INR in Million
2015-16 2014-15
Gross Premium 184 151
Net Premium 163 1,38
Net Incurred claim 128 1,18
Percentage of Net Premium 78.8 87.7
Underwriting Profit/Loss -11 -13
Investment Income 42 42
Profit After Tax 28 26
Premium Share (%)
Premium Split 2015-16
Overseas – US$ 1.24 BLN – 45%
Domestic – US$ 1.53 BLN – 55%
Total – US$ 2.77 BLN – 100%
Line of Business Premium Share
Class
Fire 35%
Life 1%
Hull 3%
Cargo 3%
Credit 1%
Other Misc 9%
Health 14%
PA 2%
Liability 1%
W.C. 0%
Engg 5%
Aviation 2%
Motor 24%
Total 100%
D) Entry of Global Reinsurers in Indian Market
As per IRDAI’s news Global Reinsurers are given licenses to enter Indian Market in October 2016. They have to start operations from 1st January 2017.
According to general norms Minimum Paid Up Capital for professional reinsurers is Rs. 2000 MLNS with 49% shareholding by foreign joint venture partner. But Lloyds, Munich Re, Swiss Re, SCOR, Hannover Re are given specific permission to bring 100% Paid Up Capital of Rs. 5000 MLNS each in Foreign Exchange without any Indian Joint Venture partners. Their operations as Branches in India are called ‘Profit Centres’ in common usage.
With the entry of these Global Reinsurer with RGA will imply:
- 5% Obligatory Policy cessions to GIC Re may be discontinued with effect from 1st April 2017.
- There will be free competition among GIC Re, ITI (Indian Pvt Reinsurer) and all Global Reinsurers. This will imply GIC Re as National Reinsurers to be competitive with better understanding of Domestic Market.
- There will be ‘Price alignment’ and new innovative products are likely to be brought by Global Reinsurers.
- In addition to Paid Up Capital the Global Reinsurers will also retain 50% as huge reserves as their additional financial strength to operate in India.
- Effective competition will be benefitting all Indian Insurance Companies whose Reinsurance Treaties will be largely placed in India. This means Reinsurance Premium outgo in foreign exchange will be minimized as major reinsurers including GIC Re are based in India.
- All Facultative Reinsurances will be placed within Indian Market with all these reinsurers. No outward Fac Re of Domestic Market will be needed.
- All the 4 PSUS – New India, National, Oriental and United India also act as reinsurers who write Inward Foreign Reinsurances. Currently 4 PSUS acting as Reinsurers do not write Domestic Companies Outward Reinsurance Treaties because of clash of Interest and overlapping accumulations.
- Retrocessions of all Reinsurances will be placed abroad with large volumes of retentions and retentions are also to be retroceded by Excess of Loss Treaty Programmes.
E) Conclusion:
Indian Reinsurance Market will become stronger, larger and premium will increase with stability and strength. India will emerge as the Reinsurance Hub of Asia and Africa.
Off-shore/On-shore Oil Rigs of ONGC, ESSAR, Reliance, Oil Refinery at Jamnagar, Space Risks of ISRO projects and Cyber Risks in Digital India are potential areas of innovative expansion.
Cross Border Reinsurers were given UIL- Unique Identification Number- after scrutiny of Financial Strength by IRDAI. They have suffered losses of Natural Catastrophes an Outward Reinsurances of Indian Insurers for more than five years upto 2016. Now they have minimum scope to continue.
Life Reinsurance volume in Indian Market is around 1% of Life Premium. Its growth has been moderate. Exclusive Life Reinsurers like the RGA and Global Composite Reinsurers handle a big chunk of Life Reinsurance Premiums. Let us hope valuable contributions by Global Reinsurers will bring higher scope and better opportunities from 2017 onwards. Let us invent the best of scope, amidst all challenges of changes!
Future is to be INVENTED out of these challenges by innovative contributions with the entry of Global Reinsurers hence force.
