GIC Re will continue to focus on bottom-line approach: CMD Devesh Srivastava

Devesh Srivastava, Chairman and Managing Director - General Insurance Corporation of India

State-owned reinsurer General Insurance Corporation of India (GIC Re) is transitioning to a bottom-line approach and lowering the combined ratios close to 100.

GIC Re's Chairman and Managing Director Devesh Srivastava in a conversation with Moneycontrol, talks about the business so far, international expansion, emerging risks, etc.

Srivastava said GIC had been there for the past 50 years, and it had been preparing for the next 50 years. It has always had a big role to play in the Indian market, and that it will continue to play and take the market forward. He added that they would look at the best practices and want risk-based capital coming in.

The journey for GIC as Indian reinsurer has just begun and it is happy with the way it is progressing, Srivastava said.

Edited Excerpts:

Q. How has the business been so far in 2021?

So far in H1, we have done pretty well; we are on a path where we want to take our combined ratios close to 100. So with that brief given to all our underwriters, we are slowly and steadily moving towards lower incurred claims because right now, our profits are coming from investment income. The whole idea is as a listed company, we have to start making profits from our operations because investment is a secondary function; the primary purpose is reinsurance.

If that be the case, a combined ratio of 110 plus is not palatable to all our investors as well. So consistently, when we have our quarterly investor calls, we feel the education part is crucial. Somehow, insurance is not something that comes to an individual alone, let alone reinsurance.

The demand is to start making profits in our operations that can only come when combined ratios are taken below or close to 100. However, the H1 closing indicated that the incurred ratio is coming down, so that's a heartening sign and continues.

We have managed to do quite well, and markets have boomed, so our investment income is also good.

International treaties are up for renewal as compared to the Indian market, where renewals happen on April 1st, which is close to 60-65 percent of our business. The international market renews by and large in January, as the west follows the calendar year pattern.

Treaty is about 90 percent plus of our book. Anything to get our portfolio to a healthier mode can only happen on either January 1st or April 1st. With these incoming opportunities, we do look at making our portfolio much healthier.

In our history of 50 years, we have always written for topline, and we had healthy investment backing us up. So this demand for the turnaround of the thought process to a bottom-line approach is only post listing, and it is not easy to stop a juggernaut and turn it around. But that's what we attempt to do, and the signs are heartening.

Underwriters have realised we have to work for a bottom-line approach, Syndicates at Llyods are giving us a lot of intellectual inputs, and those syndicates are 100 percent owned by us.

Q. Have you set a timeline for getting to the bottom line approach?

I was always hopeful between six to eight quarters, but it may take around 8-10 quarters, but we are definitely on that path.

Q. Did COVID-19 impact the timelines?

Not really Initially, COVID-19 impacted two big portfolios, motor and health, which together constituted nearly 70-75 percent of the insurance market. So it's a big chunk of our pipe too.

Planned operations that were there in the health sector were all pushed, a lesser number of vehicles were there on the road, so we had a good going back then.

The other thing that I often say is what decades of advertising couldn't do; COVID-19 increased insurance awareness.

The cons were there too; the second wave was devastating - we did see a lot of claims coming, our life portfolio was quite severely affected, but life is only about 2 percent of the business, but still the impact was seen.

Q. How are the conversations going on for the international treaties?

We are getting along, and the rates are holding, which is a good sign where we haven't seen much dilution of rates. But, on the other hand, treaties that have had losses have seen 15-20 percent rate hikes as well.

Q. How's the transition to GIFT City been from the Dubai office?

The Dubai office was not doing too well, and the GIFT City was giving us almost all the opportunities that were being offered in Dubai. So we thought it was important to move to GIFT City, and now with the amount of bells and whistles GIFT City is offering, we are looking at many plusses in going to GIFT. For example, we would want to upgrade the branch into a subsidiary in the near future and route our entire foreign operations through there, and it makes an immense amount of sense for us. We are trying to push it in a big way, posting more people there; operations are at the top of the pops there.

Q. How are the underwriting standards evolving?

We are writing only what makes sense to us, which essentially means which will make a rupee of profit at the end of the year. That's the mindset change. Secondly, underwriters are beginning to look at everything from many more angles. The syndicates at Llyods have the best practices under their belt, and they give us a lot of intellectual input, which helps us get price adequacy for whatever we are writing.

The underwriting standards have seen a sea change here, the mindset of course, and we have tools to tackle, and it's a constant endeavor.

We have to raise the bar of our underwriters, which is happening, and it's a good sign. Most of the youngsters are extremely talented boys and girls, well-educated and qualified and future of GIC.

We are writing only what makes sense to us

Climate change is real and is having an effect. In our books, Nat Cat is an integral part of our property underwriting, which we are adequately covered by reinsurance for that. But, as we go forward, it is a concern for us as a reinsurer because the buck stops here really.

So we have to feather our nest now, as future nat cat events can impact specifically if it happens in a concentrated place. The rates are holding on and have stabilised to some extent or would have plummeted even more. IIB is taking care of the rate and going forward, we will have to take care of building a good portfolio on the nat cat as well.

Q. Are you cutting down on the crop business?

Two years ago, when GIC Re had unfortunately posted one of its losses, it happened in 2018-19. We realised the crop was doing maximum damage to us, and that is when we realised that the crop could not be managed, it is something we possibly had let loose the reigns. We hadn't given any thought to our underwriting, and we started looking at the crop business intensely and getting a deep dive into it. Hence, we started husbanding the capacity to only those cedents who had done a lot of ground work and were present at the last mile.

It did mean shedding a lot of premium, which we did, but now we are absolutely stable, and in any case, it is a three-year term, so it's going on well. Our combined ratios are hovering around at 99-100, and we are pretty comfortable with this development.

Climate change is real and is having an effect.

Right now, we are very comfortable where we are, and reinsurance has always been a cross-border trade. You will never write 100 percent of a market. You know we have the right of first refusal, we could jolly well write 100 percent and call it quits, but we don't do that because we don't want volatility in our portfolio. Being an international cross-border trade, we have a model where most work is done by email. We can do it very quickly sitting here if I want to write something out of Chile or Papua New Guinea. Whether it makes sense for me to go there and open an office is something that would need a lot of deep thought.

At GIC Re, we never do anything in a hurry. If you see, the Moscow office was opened a couple of years ago, that's after being in the market for over one and half decades.

We are comfortable where we are, and the syndicate is doing well; branches are doing fine.

Q. Outlook for H2, have you set any projections?

The season has gone well, and we haven't seen many Nat Cat events; flood season is largely over. Unseasonal rains are not that frightening. The going should be good till April 1st, the markets are going well, and investment profits should be good.