India's sole national reinsurer General Insurance Corporation of India (GIC Re) has been affected adversely by accumulated losses in the past few years. But, with the markets showing signs of revival, the company is looking to bounce back and recoup losses. In an interview with M Saraswathy, Ashok Kumar Roy, chairman and managing director of GIC Re talks about the strategies adopted to achieve growth. Excerpts:
Last year, you had witnesses some stress in financial performances. Will this year be a better one?
Going by the indicators, what we are seeing is that this year's performance will be extremely good. This year has been benign year as no major catastrophe related event has occurred during this period. Our net profit was around Rs 1,263 crore for the six months ended September and same trend is expected to continue. But we have to keep our fingers crossed till the last moment and hope that the situation remains the same as previous quarters.
Would you be reducing exposure to loss-making segments to reduce loss ratios?
To curtail losses, we introduced event limit in India, for the first time. We introduced sliding scale commission where if performance is better, you get more commission and if performance is no good, commission is reduced. So, this puts a cap on our overall outgo. We have also pruned down our exposure in businesses like marine-hull, marine and in some cases property treaties and reduced exposure in retro business. in some places which were consistently loss making for the past many years. We have international business too and we expect that to do better than domestic market.
Since insurers have demanded that obligatory cessions should be dismantled, are you in favour of this?
I do not have a clear-cut answer. It gives us smooth topline without any marketing effort. This gives us a size and standing in the international market. We have been suffering losses for obligatory segment in the past few years. Our accumulated losses are to the tune of Rs 4,500 crore for last five to six years. So, when we have stood with the market in the bad years, why should we leave it when the market is turning around. Though we want to come out of obligatory segment gradually, in the meanwhile, we want to recoup our accumulated losses.
Shouldn't there by a preferential treatment for insurers who do not have a risky portfolio, since they have requested for it?
It is a rightful demand as any system should be fair to all. It should not cost either us or the insurers hugely. We can support each other on mutually acceptable terms. We have therefore demanded from regulator that we should given complete freedom to negotiate the commission rates, so that we can fix those in relation to the quality of business ceded in obligatory business.
Are you looking for 10% obligatory business from life insurers too?
There was a request made to the regulator but nothing much has happened on that. In case of life insurance, the risk part of the premium is very small. For LIC, total outgo as reinsurance premium is less than Rs 100 crore. If one asks for 10 % obligatory cession, it is an insignificant figure.
Will you be going big on your international operations, since you already have offices in nations abroad?
GIC Re is operating globally and are present in more than 100 countries for doing business. This business is done through network of brokers. As far as our physical presence is concerned, we are present in areas like London, Dubai, Kuala Lumpur and Moscow. We are in advanced stage of creating our physical presence in South Africa and Brazil. We have also entered into a joint venture arrangement with Bhutan and operations will commence soon.
About 45% business comes from internationally and are looking at achieving a 50-50 mix. For this, our growth in international markets has to be faster than that of domestic market and this is a challenge for us.
GIC Re had concerns about terms and conditions of co-insurance? Have they been addressed?
We have put conditions that if business is getting co-insured with various cedents, then they cannot automatically utilise their capacity with GIC Re for ceding to the treaty. What was happening was that due to the automatic 10% clause and thereafter arrangements with GIC Re, apart from whatever they were retaining, the rest was automatically coming to GIC Re and getting absorbed. In some cases, our exposure in case of a claim was as high as 70-80%, without our knowledge. To curb this situation, we have put a restriction that in co-insurance arrangements would not utilise the full capacity of our treaty with them.
