GIC having a relook at obligatory reinsurance contracts
Stung by a Rs.2,469 crore net loss last fiscal, national reinsurer General Insurannce Corporation of India (GIC) is re-assessing its domestic obligatory reinsurance contracts, said a senior official of a non-life insurer.
"GIC has written to some non-life insurers in the country asking them to list out the action plan to make the obligatory reinsurance cession profitable. The national reinsurer has also told non-life insurers that it is relooking the obligatory portfolio," the official told IANS on condition of anonymity.
Despite several attempts, Ashok Kumar Roy, chairman-cum-managing director of GIC, was not available for comments.
Reinsurance is an insurance protection taken by primary insurers with reinsurance companies. The primary insurers would claim from the reinsurers losses it had paid to its policy holders.
Reinsurers pay a commission to primary insurers for placing their reinsurance business with them. For some non-life insurers in India, this income will be sizeable as their risk retention rate is very low.
Obligatory cession is a specified percentage of reinsurance business that has to be placed by primary insurers with the national reinsuer so as to retain the flight of reinsurance premium out of the country.
In India, non-life insurers have to compulsorily place a minimum of 10 percent of their reinsurance business with GIC and is known as obligatory cession.
According to the industry official, GIC, citing high claims ratio, has told some non-life insurers that reinsurance commission on loss-making portfolio does not make any business sense.
GIC has also asked the non-life insures to explain the steps they would take to cut their losses. The reinsurer has also warned that it would be constrained not to accept reinsurance business.
When asked, non-life insurance officials told IANS that GIC cannot turn away the obligatory business but it may refuse to pay commission on that business.
Industry officials said GIC may just accept the obligatory part and not additional business from a primary insurer.
GIC's huge loss last year was due to its overseas portfolio, they added.