M Saraswathy Moneycontrol News
Reinsurance rates have been flat during this fiscal year as revealed by renewals of treaties which took place from April 1. Reinsurance, which refers to risk support taken by insurance companies, depends on the claims received in the previous year in that particular segment.
G Srinivasan, Chairman and Managing Director, New India Assurance said that except marine hull where there was a large claim in FY17, rates for other reinsurance contracts have been flat.
The contracts in reinsurance come up for renewal on an annual basis. Reinsurance is the insurance taken by insurance companies to mitigate the risks of claims and claim payments brought about by large risks. In this, the reinsurer takes on the entire risk or part of the risk covered under a policy by an insurance company.
If adequate support is not available in India for reinsurance, companies go abroad to foreign reinsurers to get a coverage. This includes large risks like aviation, marine or nuclear risks.
During the time of renewal, the rates are decided not just based on domestic events but also on global events. A single or group of events happening in the particular country may or may not affect the rates, but a large global catastrophe may impact rates since the reinsurer(s) would have an exposure to those risks.
For the past two to three years, rates have been soft due to no major catastrophic events in India or abroad. While the Chennai floods of 2015 hit insurance companies with heavy claims, reinsurance rates were not impacted by it.
If a reinsurance rate goes up heavily in a segment, the premiums are also increased to compensate for the additional payment being made by the insurer. In the absence of a reinsurance cover, insurers are also likely to reject a cover to an entity since they will have no protection from a financial liability in case of a large claim and may face a financial crisis.
The state-owned domestic reinsurer General Insurance Corporation of India (GIC Re) has the first right of refusal in reinsurance contracts. This means when such a contract comes for renewal, they get the first right of refusal and only then it is passed on to other reinsurers.
The insurance regulator has granted branch licences to several global reinsurers including Swiss Re, Munich Re, SCOR Re, Hannover Re, RGA Life Reinsurance of Canada, among others.
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