ONGC gets 38% premium reduction on risk cover

The Oil and Natural Gas Corporation (ONGC) has secured a 38 per cent reduction in premium on its insurance policy for 2007-08, in spite of consecutive losses in the last two years. The policy is due for renewal on May 11.

ONGC's insurance policy is the country's largest insurance policy. Insurance policies, where the sum insured is Rs 2,500 crore and above, are called large risk policies and are largely reinsurance driven i.e. the reinsurers decide the terms and conditions of the policy.

RS Sharma, CMD of ONGC, said, "We have received a confirmation from United India today that the risk has been placed overseas. We have paid the premium and the insurance policy will be issued to us before May 11." When asked about the premium, he said, "This year the reduction in premium is 38 per cent."

Speaking about the risk sharing, MK Garg, CMD of United India Insurance company, said, "The mandatory 15 per cent of the risk is reinsured with GIC. United India is the lead insurer and the remaining three insurers, New India Assurance, Oriental and National Insurance are sharing around 8 per cent. The remaining 77 per cent will be reinsured overseas."

ONGC's current assets in India exceed $20 billion. For the purpose of this insurance cover, the declared value is around $15 billion. This is an increase of 25 per cent over last year's declared assets. Last year, the declared assets were approximately $13 billion and the premium was $47 million. United India was the insurer, with Ace and AIG being the reinsurers.

The premium amount changes every year, depending on the asset value and the reinsurance market capacity and costs. The premium is quoted at $29 million this year, though the company reported losses of

Rs 1,800 crore or $400 million in 2005. It also lost a vessel called Sagar Bhushan in 2006, where the claim amount could vary between $30 million and $70 million.