GIC expands global footprint

National reinsurer General Insurance Corporation has expanded its global footprint, aided by the financial crisis which has hit existing international reinsurance companies hard.

The designated national reinsurer saw a 20 per cent growth in renewals as of January 1, 2009, compared to the previous year. GIC has also increased its reinsurance business in Dubai from Rs 369 crore (Rs 3.69 billion) in 2007-08 to Rs 517 crore (Rs 5.17 billion) in 2008-09. Similarly, in London, the company's fully underwritten cover amounted to Rs 326 crore (Rs 3.26 billion) this year. The company had started its London operation in 2008. Insurance companies in the West follow the calendar year while conducting business.

Major global players have been dominating these markets for a long time. But they are now facing losses, including investment losses. For instance Zurich-based Swiss Re, one of the largest reinsurers in the world, received $2.59 billion in financial assistance from Warren Buffet after it anticipated a net loss of a billion Swiss francs ($861.67 million) for 2008.

"Global insurers are showing faith in GIC. It has got some psychological support in view of its sovereign rating," a senior GIC executive said.

The source pointed out that, because of the ongoing meltdown, international capacity has not increased. At the same time, GIC is concentrating on proportional treaty. It now has liaison, representative or branch offices in London, Moscow and Dubai. GIC recently started its operations in Brazil too. Reinsurance renewal in Asia, Africa and West Asia is also due in May.

Currently, GIC's international business accounts for 27 per cent of its total business, while the rest is generated domestically. Yogesh Lohiya, chairman and managing director of GIC, had said earlier that the company will focus on increasing its global share to 50 per cent in the next two-three years.

According to industry sources, GIC's domestic business will also inflate when treaty renewals come up in April, as a result of the financial crisis. Among other international reinsurers active in India, Munich Re, Lloyd's, Asia Capital Re, Swiss Re and AIG are the most prominent ones. At present, insurance companies are required to pass on 10 per cent of the liability to the national reinsurer.

The limit was brought down from 15 per cent in 2007 to the present level in 2008. However, insurance companies have always parked more than the stipulated level with GIC.

Public insurers place 25 per cent of their total risk and retain the rest, while private reinsurers allocate 50 per cent with the national reinsurer. In terms of total risk placed, public insurers put 70 per cent with GIC, while private players park around 60 per cent with the national reinsurer. GIC scores higher in terms of ratings too. Sector regulator Insurance Regulatory Development Authority had prescribed a 'BBB' rating for a reinsurance company with regards too any reinsurance treaty arrangement.

In September 2008, rating agencies had downgraded the American Insurance Group after it posted losses and got bailout package from the US government.

Likewise, rating agencies are looking at downgrading even Swiss Re. S&P has already placed an 'AA-' long-term negative credit watch after its announcement of a net loss in 2008.

"There will be a negative perception about Swiss Re in the market, but it will be short-lived. It will have little impact on the Indian insurance industry as there is enough space in the market. But it will definitely effect the business operations of Swiss Re," a reinsurance broker said.

GIC, on the other hand, has a higher rating with its public ownership status.