New Delhi, Dec. 29: General Insurance Corporation of India is set to underwrite the life reinsurance business from next month.
“We will start canvassing for business from January,” P. P. Deshmukh, head of GIC’s life reinsurance department told The Telegraph. “We plan to reinsure both the domestic and overseas businesses and have already received several proposals from Asian and African life insurers.”
GIC’s life re-insurance department is rather small, comprising three members from the insurance company itself, two from Life Insurance Corporation (LIC) and a newly appointed actuary. Two more people from GIC itself are expected to join the life re-insurance department. The actuarial evaluation for GIC will be done by L. P. Venkataraman, a former executive director in LIC’s actuarial department.
The state-owned reinsurer has yet to receive a formal clearance from the Insurance Regulatory Development Authority (IRDA) before Venkataraman steps on board.
“We have already received an informal clearance from the IRDA. We don’t expect any problems on this front,” Deshmukh said.
GIC has approximately Rs 2,700 crore in its reserves which can be utilised for business development. Company sources say the reinsurer will invest at least 10 per cent of this amount to kick start its life reinsurance operations.
“Initially, we do not intend to take large risks in our overseas operations. We will limit our risk to 3-5 per cent of the overseas insurer’s total reinsurance cover. But we are very upbeat on the domestic business. We are confident of assuming the entire risk of any domestic life insurer. Mortality rates in India being more stable, it will be less risky for us,” sources added.
Currently, the worldwide reinsurance premium accounts for 1.5 per cent to 7 per cent of the total premium life insurers collect. Statistical data reveals that the reinsurance premium paid by LIC for 2000-01 was a minimal 0.5 per cent of the total premium.
Liyaqat Khan, president of the Actuarial Society of India said, “Although exact figures are not available, market feedback for the new life insurance companies suggest that about 30 per cent of the premium collected goes towards reinsurance.”
At present, all non-life insurance companies have to mandatorily cede 20 per cent of their reinsurance business to GIC. There is no such stipulation for life insurance companies, simply because there is no life re-insurer in India.
“It is wrong to make life reinsurance mandatory; it goes against the philosophy of opening up the insurance market. It does not make it practicable to have a mandatory life reinsurer,” Khan said.
“We will be doing two kinds of reinsurance business. One will be on the treaty basis and the other on a facultative case basis,” Deshmukh said.
Under a treaty arrangement, GIC will charge a mutually agreed percentage of business from the life insurer in a year. Under the facultative system, GIC will charge the insurer on a case-by-case basis.
“We will have to look into the past performance of the insurer, analyse past claim ratios and understand the entire risk profile before entering into any such treaty. As of now, we have not held talks with any insurance company,” he added.