REINSURANCE IN INDIA

Presented By:

Rohit Ranganathan

WHAT IS REINSURANCE?

In simple terms reinsurance is insurance for insurance companies.

It is a means by which an insurance company can protect itself from risks.

The company who requests for the cover is called the cedant and the reinsurer is called the ceded.

Risk Transfer Greater individual risks than its size Offer higher limits of protection to a policyholder

Income Smoothing Absorbing larger losses

Surplus relief Solvency Margin

Arbitrage Price differential between two or more markets

Reinsurer’s Expertise

Manageable and Profitable Portfolio

Managing Cost of Capital Capital In terms of Reinsurance

WHY REINSURANCE

How Reinsurance Works

Transfer Of Risk

Risk TakersMiddle Persons

Insurance Policy

Holders

Insurance Companies

Reinsurance Companies

Agents

BrokersReinsurance

Intermediaries

TYPES OF REINSURANCE

There are two types of reinsurance: Facultative Treaty

Each type of reinsurance can be structured in one

of the following two ways:

Proportional Non Proportional

FACULTATIVE REINSURANCE Facultative reinsurance applies to an individual risk,

i.e., one commercial fire policy or even only one

location.

Insurer and reinsurer agree to the reinsurance terms

on each individual agreement.

It is generally used to reinsure:

a) Extra-hazardous or unusual risks which might be excluded from treaty reinsurance agreements.

b) High valued risks with policy limits exceeding maximum treaty parameters.

TREATY REINSURANCE

Applies to an insurance company’s entire book of business.

Some of these include all commercial fire polices, all automobile policies, all workers’ compensation policies, all homeowners policies, or, more generally, any combination of the above.

Treaty reinsurance is the one in which both pro-data and excess of loss forms are used.

PROPORTIONAL REINSURANCE One or more reinsurers take a stated percent share

of each policy that an insurer produces.

The reinsurer will receive the stated percentage of

each dollar of premiums and will pay that percentage

of each dollar of losses.

Example: Surplus share:  Reinsurer assumes pro

rata responsibility for only that portion of any risk

which exceeds the company’s established retentions.

NON PROPORTIONAL REINSURANCE

This insurance responds when the loss suffered by the insurer exceeds a certain amount.

Example:

The insurer is prepared to accept a loss of $1 million for any

loss which may occur and they purchase a layer of reinsurance

of $4 million in excess of $1 million. If a loss of $3 million

occurs, then insurer will retain 1Million and will recover $2

million from its reinsurer(s).In this example, the reinsured

will retain any loss exceeding $5 million unless they have

purchased a further excess layer (second layer) of say $10

million excess of $5 million.

Reinsurance the Reinsurance companies. Reinsurance seller is “Retrocessionaries” Reinsurance buyer is “Retrocedant”

RETROCESSION

WAYS TO REINSURE

Pooled Reinsurance Reciprocity Subsidies

The sole domestic reinsurance company of India AAA+ Rating Incorporated on 22 November 1972 Subsidiary companies of GIC

National Insurance Company Limited The New India Assurance Company Limited The Oriental Insurance Company Limited United India Insurance Company Limit

GIC Asset Management to manage GIC Mutual Fund GIC Housing Finance Export Credit Guarantee Corporation

Business Of GIC Domestic Reinsurance Business(73% of the Revenues

GIC + Hannover Deal (60:40) – Life Insurance International Reinsurance Business (27% of the Revenues) Investment and Fund Management

GENERAL INSURANCE CORPORATION (GIC)

20% of each policy with reinsurance company

Inter-company cession between four public sector

companies.

First GIC and then International companies.

Insurance company to inform before 45 Days.

Not more than 10% of reinsurance premium to be placed

with one re-insurer.

No re-insurer will have a rating of less than BBB from

standard and poor

REINSURANCE REGULATION IN INDIA - IRDA

In Rs. Crores 2008-2009 2007-2008 % Change

Net Profit 1407 992.7 41.75

Net Premium 7402.3 6750.8 18.71

Gross Premium 8061.13 7981.9 1.4

Solvency Margin

3.67% 3.36% -

Net Incurred Claims

6217.1 4582.95 35.65

Income from Investment

1785.8 - -

Investments 21,714 - -

FINANCIAL RESULTS

CLASS WISE EARNINGS FOR YEAR 2007-2008

Earned Premium: Incurred Claims:

CLASS WISE EARNINGS FOR YEAR 2007-2008

1.Misc

Covers are not available for liability, professional indemnities, financial risks, oil and energy etc.

International competitors don’t quote for small ticket deals

Premium rates are costlier as foreign competitors quote more

Desirable quotes from the Indian market are not available with promptitude

Different dates of finalization of accounts globally

Reinsurance cover for terrorist attacks is still a debate

CHALLENGES FOR REINSURANCE INDUSTRY IN INDIAN MARKET

CASE STUDIES: CASE 1 – PREMIER INSURANCE COMPANY IN GUJARAT

CASE STUDIES: CASE 2 – REINSURANCE ON TERRORISM

•Earthquake in 2001 followed by floods•600 Crores of losses•Stop the business / receive help•GIC to Rescue•Socially being responsible by giving incentives and clearing out dues

•WTC Attack•Effect on Indian Industry•What next???•Pool – GIC, 4 Subsidiary & 6 Private companies•200 Crores Pool – Which is too less•New development regarding this – Debate still on