India Inc might have to shell out more while renewing insurance policies, as global reinsurance rates are seen hardening by 20-25 per cent when such policies comes up for renewals from April.
Global reinsurers such as Swiss Re and Munich Re, stung by record catastrophe losses in 2011, are demanding more for insurance cover in loss-affected areas.
Buyers of global catastrophe programmes and business interruption cover are faced with lower limits, higher prices and requests for more information, following tough reinsurance renewals in January.
"Reinsurance players are insisting on a cap on single limit covers of, say, Rs 25 crore for a single incident. Unlimited covers are not available in the current situation as loss ratios have gone up," said K G Krishnamoorthy Rao, MD and CEO, Future Generali India Insurance Company.
Insurers are also being asked to provide more disclosures in terms of profitability, capacity and loss ratio of the portfolios.
Insurers in India buy annual reinsurance protection in April. In western markets, reinsurance programmes begin on January 1. In Asia-Pacific, it begins on April 1.
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Indian corporates are already facing the heat. For instance, ONGC is likely to facing challenges in renewing its insurance policy, which comes up for renewal on May 11, 2012. Last month, ONGC, the holder of the biggest insurance policy in the country, has floated a tender to underwriters to primarily cover its offshore assets, worth $33.7 billion. Premiums are likely to rise by 15-20 per cent for the new policy. Last year ONGC paid $25-27 million for covering assets worth $32.6 billion.
Last year was a particularly unfavorable time for insurers due to tsunami and earthquake in Japan, and floods in Australia and Thailand. Global reinsurers had pegged economic loss at $800 billion.
Reports by reinsurance majors indicated that in 2011, insurance industry took a hit of more than $100 billion, which is more than double the $45 billion claims in 2010.
General Insurance Corporation, the designated national reinsurer, has taken a hit of around Rs 1,800 crore in net worth on account of the unprecedented claims arising from these global catastrophes.
"The conditions for reinsurance treaties are also getting stringent, particularly for companies that have exposures worldwide," said an official at Bajaj Allianz General Insurance Company. "They are looking at the loss ratios and the profitability of the portfolio. Reinsurers are trying to ensure that risks should be adequately priced."
Typically under reinsurance treaties, reinsurance support is around 70 per cent of the risk for covers below Rs 1,000 crore. For large covers, 90 per cent of the risk is passed on or reinsured by global reinsurance majors.