Reinsurance country report: India calling

Indian skyline

The Indian reinsurance market offers strong opportunities for growth, writes Katherine Blackler

Lloyd's shut down its representative office in July 2008 after only a year in India due to delays on receiving a decision on its request for a license from the authorities - sparking speculation about the future of the Indian reinsurance market. Two years on GIC Re is still the only reinsurance company operating in India with a local presence.

Though many major international reinsurance companies have displayed interest in the market by opening representative offices in the country, including Swiss Re, Munich Re and Scor, no company has an operational office owing to local regulations.

Currently Indian insurance companies have to cede 10% of their reinsurance on a QS basis in respect of each general insurance policy as obligatory cessions to GIC Re.

However, GIC Re is coming under increasing competition from companies with capacity being made available from Singapore, London and the Middle East. Lloyd's also continues to place Indian business from its London hub.

One such company is Hiscox which offers "expertise" reinsurance from its Bermuda operations. "Expertise reinsurance is prevalent where local insurers are offering products without having the expertise in house, so they go into partnership with another company. For example at Hiscox we have fine art and technology books in India. It is technically reinsurance but the business is actually underwritten by the insurance underwriters in the local insurer," says Charles Dupplin, CEO of Hiscox Bermuda.

Dupplin believes that India offers a very attractive market for international reinsurers as it is rapidly expanding: "India is a story that is about to happen. At present the insurance market is not very developed but it is expected to grow by around 25% a year for the next few years. There is still only a very small reinsurance market at the moment , nobody [other than GIC Re] has any really big books."

For the Indian financial year of 2008-09, the general insurance premium in India was around $6bn. The domestic companies' retentions were approximately 70% and ceded reinsurance premium was about 30% out of which 66.6% was with GIC Re.

However, for Hiscox and the other international reinsurers offering this kind of "expertise" reinsurance there is the danger that once local markets develop their own underwriting expertise, the foreign reinsurer could be left out in the cold.

Local threat

Dupplin says: "There is always a danger that as the local insurers develop their own expertise they will not have any need of us anymore. So we have to choose who we will do business with carefully. We need to choose partners who will be likely to want to work together in the long term."

Rates in the Indian reinsurance market have plummeted in the last few years with the beginning of the liberalization of the local market and abolishing of the tarrifs for all classes of business except motor. This has obviously effected the underwriting results of the (re)insurers operating in the region.

In December sources told Reinsurance that Indian reinsurers were looking to raise rates by as much as 10% for 2010 renewals. According to the sources the aviation sector was to see the highest rises of up to 15% or over. However, results from our March Rethink survey show that Reinsurance readers expect rates to remain stable.

Anil Sant, assistant general manager at GIC India's UK branch, believes that the market has now stabilized and rates may begin to rise soon: "The market seems to have stabilized without any further softening and there are indications that the premiums in certain segments would go up. It is expected that insurance companies will have to pay higher prices while seeking reinsurance programme protections from reinsurers in the coming renewal season."

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