New Delhi: National reinsurer General Insurance Corp. of India, or GIC, said it may not hike the rates it charges insurance companies to carry a part of their risks. The announcement came as at least one overseas reinsurer—Munich Re Group—said it will increase the rates in the country, citing higher risk exposure.
In India, reinsurance contracts are renewed at the end of every fiscal year. Insurance companies are required to insure 10% of their risks with GIC. About 70-80% of risks are reinsured outside India.
“If you see international reinsurance markets, which closed their contracts on 1 January, reinsurance companies have not increased their rates much,” said M. Ramprasad, a general manager with GIC. “Our revision of rates will be more or less in line with the trend in Asian and African markets.” The rates would remain flat, he added.
Reinsurers assume part of an insurer’s risk in large policies in return for part of the premiums the insured pay. This allows an individual insurer to take on clients whose coverage would be too risky for it to carry alone. They also help reduce the amount of capital insurers need to sell policies against risks, including natural calamities, sickness, death, accidents and lawsuits.
Since January 2007, premium rates have fallen sharply in India, especially in engineering and fire segments, leading to a fall in earnings of reinsurers.
Munich Re, however, foresees the immediate need to increase the rates in India. “The year 2008 has been recorded as the 10th warmest year. Generally, not only weather, we do see exposure rising in India,” said Tobias Farny, a senior executive at Munich Re. “This, of course, triggers higher prices. We will, however, look at all risks individually.”
According to Munich Re, the insurance industry had to cope with $75 billion (Rs3.69 trillion) of natural catastrophe losses in 2007, a 50% increase from a year earlier. That year was among the seventh warmest on record worldwide, Munich Re said in a report on its website, citing data published by the Hadley Centre in the UK.