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Business News/ Companies / Munich Re Group plans India branch
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Munich Re Group plans India branch

Munich Re Group plans India branch

Optimistic outlook:Munich Re Group chairman of the board of management Nikolaus von Bomhard says he is upbeat about the Indian government’s attitude to the need for a change in insurance laws.Premium

Optimistic outlook:Munich Re Group chairman of the board of management Nikolaus von Bomhard says he is upbeat about the Indian government’s attitude to the need for a change in insurance laws.

Munich Re Group, one of the world’s largest reinsurers, plans to open a branch in India - once local laws allow this - in an effort to tap a rapidly growing market in one of the world’s fastest growing major economies. A reinsurance branch in India would provide the company a “totally different scale to work on", said Nikolaus von Bomhard, chairman of the board of management, Munich Re Group.

Munich Re - which recorded a premium income of Euro 37 billion (Rs2.06 trillion) - has a representative office in India, but current laws limit its ability do business. “A representative office can’t openly solicit business," said Sharmila Karve, a partner who specializes in insurance at audit firm PricewaterhouseCoopers.

“Once a branch office is opened, it will be 100% ownership," said Bomhard.

The advantage of a branch is that it would “put them in direct touch with customers", added Karve.

Reinsurers are the last line in the insurance industry; insurance companies approach them to share the risks of the business they have underwritten.

The Indian general insurance and life insurance industries have recorded real growth rates of 11% and 17%, respectively, in the recent past. The real growth rate of GDP for a seven-year period ended 31 March was 6.9%. Real rates of growth are calculated by excluding the rate of inflation.

In contrast to the growth rates in India, the general insurance market in Munich Re’s home territory, Germany, has been growing at 1-1.5%. The difference in growth rates is an “obvious invitation for us to be active here", said Bomhard.

Optimistic outlook:Munich Re Group chairman of the board of management Nikolaus von Bomhard says he is upbeat about the Indian government’s attitude to the need for a change in insurance laws.

The Munich Re chairman, who met finance minister P. Chidambaram on 8 August when a group firm launched a stand-alone health insurance company in association with Apollo Hospitals Group, said he is upbeat about the government’s attitude to the need for a change in laws.

An amendment to insurance laws to allow foreign reinsurers to start branch offices was part of the legislative changes the government planned to introduce in the Parliament during the budget session earlier in the year.

The Centre had to drop the idea as the Communist parties, which support the government, were opposed to one key change: hiking foreign direct investment in insurance companies to 49% from the current level of 26%.

The government may unbundle the package and introduce a Bill in one of the forthcoming Parliament sessions with changes that are not contentious, such as allowing foreign reinsurers to open branches, said Bomhard.

Currently, the extent of non-life insurance business that is reinsured by general insurance companies is fairly small. The industry size in terms of premium is around Rs25,000 crore, of which about 15% is reinsured abroad. Companies have to mandatorily hand over 15% of their reinsurance needs to state-owned General Insurance Corp. of India (GIC). GIC and the general insurance companies also reinsure business with international reinsurers through intermediaries.

A big attraction of opening a branch in India would be a reduction in the role of intermediaries, resulting in higher returns for reinsurers such as Munich Re. Internationally, not more than 25% of Munich Re’s reinsurance business comes through intermediaries, said Bomhard.

Munich Re’s insurance portfolio also includes life insurance and general insurance, though their contribution to both turnover and profit is smaller than its reinsurance business.

In India, Munich Re plans to supplement its stand-alone health insurance business with a venture each for life insurance and general insurance. The group is currently in talks with Indian companies to start life and general insurance businesses. It did not give out the names of the firms to which it was talking.

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Published: 10 Aug 2007, 01:23 AM IST
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