We'd like to give up obligatory biz, but after we recoup losses: Ashok Kumar Roy

Last Updated: Mon, Jan 21, 2013 19:34 hrs

Government-owned General Insurance Corporation of India, the country’s sole national reinsurer, has been accumulating losses for some years. With the markets showing signs of revival, it is hoping to recoup. Ashok Kumar Roy, chairman and managing director, talks about the strategy to M Sarawathy. Edited excerpts:

Last year, there was stress in financial performance. Will this year be better?
From the indicators, this year’s performance will be extremely good. It has been a benign year, as no catastrophe-related event has occurred. Net profit was Rs 1,263 crore for the six months ended September and the trend is expected to continue. But we have to keep our fingers crossed till the last moment and hope the situation remains the same.

Would you be reducing exposure to loss-making segments?
To curtail losses, we introduced event limits in India for the first time. We introduced a sliding scale commission where, if the performance is better, you get more commission and if the performance is no good, the commission is reduced. This caps our overall outgo. We have also pruned exposure in businesses like marine hull, marine and, in some cases, property treaties, and reduced the exposure in the retro business in some places which were loss-making for many years.

We have international business, too, and expect that to do better than the domestic market.

Since insurers have demanded that the obligatory reinsurance business be dismantled, are you in favour of it?
I do not have a clear answer. It gives us a smooth top line, without any marketing effort. This gives us size and standing in the international market. We have been suffering losses from the obligatory segment in the past few years. Our accumulated losses are Rs 4,500 crore over five to six years. So, when we have stood with the market in the bad years, why should we leave it when the market is turning around? Though we do want to come out of the obligatory segment gradually, we want to (first) recoup our accumulated losses.

Shouldn’t there be preferential treatment for insurers which do not have a risky portfolio?
It is a rightful demand, as any system should be fair to all. It should not cost either us or the insurers hugely. We can support each other on mutually acceptable terms. We have therefore demanded from the regulator that we get complete freedom to negotiate the commission rates, so that we can fix those in relation to the quality of business ceded in the obligatory business.

Are you looking for 10 per cent obligatory business from life insurers, too?
There was a request made to the regulator but nothing much has happened on that. In life insurance, the risk part of the premium is very small. For LIC (Life Insurance Corp), the total outgo as reinsurance premium is less than Rs 100 crore. If one asks for a 10 per cent obligatory cession, it is an insignificant figure.

Will you be going big on your international operations, since you already have offices abroad?
GIC Re is present in more than 100 countries. This business is done through networks of brokers. As far as our physical presence is concerned, we are present in areas like London, Dubai, Kuala Lumpur and Moscow. We are in an advanced stage of creating our physical presence in South Africa and Brazil. We have also entered into a joint venture arrangement with Bhutan and operations will commence soon.

About 45 per cent of business comes internationally and we are looking at achieving a 50-50 mix. For this, our growth in international markets has to be faster than that of the domestic market and this is a challenge for us.

GIC Re had concerns about the terms and conditions of co-insurance? Have these been addressed?
We have put conditions that if business is getting co-insured with various cedents (passing up an interest or right as it involves a financial risk), then they cannot automatically utilise their capacity with GIC Re for ceding to the treaty. Due to the automatic 10 per cent clause and thereafter arrangements with GIC Re, apart from whatever they were retaining, the rest was automatically coming to GIC Re and getting absorbed. In some cases, our exposure in the case of a claim was as high as 70-80 per cent, without our knowledge. To curb this, we have said that in co-insurance arrangements, we would not utilise the full capacity of our treaty with them.

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