REINSURANCE IN INDIA

Presented By:

Rohit Ranganathan

WHAT IS REINSURANCE?
In simple terms reinsurance is insurance for
insurance companies.


It is a means by which an insurance company can
protect itself from risks.


The company who requests for the cover is called
the cedant and the reinsurer is called the ceded.

Risk Transfer
Greater individual risks than its size
Offer higher limits of protection to a policyholder
Income Smoothing
Absorbing larger losses
Surplus relief
Solvency Margin
Arbitrage
Price differential between two or more markets
Reinsurers Expertise
Manageable and Profitable Portfolio
Managing Cost of Capital
Capital In terms of Reinsurance






WHY REINSURANCE
How Reinsurance Works
Transfer Of
Risk
Risk Takers
Middle
Persons
Insurance
Policy
Holders
Insurance
Companies
Reinsurance
Companies
Agents
Brokers
Reinsurance
Intermediaries
TYPES OF REINSURANCE
There are two types of reinsurance:
Facultative
Treaty



Each type of reinsurance can be structured in one
of the following two ways:

Proportional
Non Proportional

FACULTATIVE REINSURANCE
Facultative reinsurance applies to an individual risk,
i.e., one commercial fire policy or even only one
location.

Insurer and reinsurer agree to the reinsurance terms
on each individual agreement.

It is generally used to reinsure:
a) Extra-hazardous or unusual risks which might be
excluded from treaty reinsurance agreements.
b) High valued risks with policy limits exceeding
maximum treaty parameters.

TREATY REINSURANCE
Applies to an insurance companys entire book of
business.

Some of these include all commercial fire polices, all
automobile policies, all workers compensation
policies, all homeowners policies, or, more generally,
any combination of the above.


Treaty reinsurance is the one in which both pro-data
and excess of loss forms are used.

PROPORTIONAL REINSURANCE
One or more reinsurers take a stated percent share
of each policy that an insurer produces.

The reinsurer will receive the stated percentage of
each dollar of premiums and will pay that percentage
of each dollar of losses.

Example: Surplus share: Reinsurer assumes pro
rata responsibility for only that portion of any risk
which exceeds the companys established retentions.

NON PROPORTIONAL REINSURANCE
This insurance responds when the loss suffered by the
insurer exceeds a certain amount.

Example:
The insurer is prepared to accept a loss of $1 million for any
loss which may occur and they purchase a layer of reinsurance
of $4 million in excess of $1 million. If a loss of $3 million
occurs, then insurer will retain 1Million and will recover $2
million from its reinsurer(s).In this example, the reinsured
will retain any loss exceeding $5 million unless they have
purchased a further excess layer (second layer) of say $10
million excess of $5 million.

Reinsurance the Reinsurance companies.
Reinsurance seller is Retrocessionaries
Reinsurance buyer is Retrocedant

RETROCESSION
WAYS TO REINSURE
Pooled Reinsurance
Reciprocity
Subsidies


The sole domestic reinsurance company of India
AAA+ Rating
Incorporated on 22 November 1972
Subsidiary companies of GIC
National Insurance Company Limited
The New India Assurance Company Limited
The Oriental Insurance Company Limited
United India Insurance Company Limit
GIC Asset Management to manage
GIC Mutual Fund
GIC Housing Finance
Export Credit Guarantee Corporation
Business Of GIC
Domestic Reinsurance Business(73% of the Revenues
GIC + Hannover Deal (60:40) Life Insurance
International Reinsurance Business (27% of the Revenues)
Investment and Fund Management

GENERAL INSURANCE CORPORATION (GIC)
20% of each policy with reinsurance company
Inter-company cession between four public sector
companies.
First GIC and then International companies.
Insurance company to inform before 45 Days.
Not more than 10% of reinsurance premium to be
placed with one re-insurer.
No re-insurer will have a rating of less than BBB from
standard and poor
REINSURANCE REGULATION IN INDIA - IRDA
In Rs. Crores 2008-2009 2007-2008 % Change
Net Profit 1407 992.7 41.75
Net Premium 7402.3 6750.8 18.71
Gross Premium 8061.13 7981.9 1.4
Solvency Margin 3.67% 3.36% -
Net Incurred
Claims
6217.1 4582.95 35.65
Income from
Investment
1785.8 - -
Investments 21,714 - -
FINANCIAL RESULTS
CLASS WISE EARNINGS FOR YEAR 2007-2008
Earned Premium: Incurred Claims:
CLASS WISE EARNINGS FOR YEAR 2007-2008
1.Misc
Covers are not available for liability, professional
indemnities, financial risks, oil and energy etc.
International competitors dont quote for small ticket
deals
Premium rates are costlier as foreign competitors quote
more
Desirable quotes from the Indian market are not
available with promptitude
Different dates of finalization of accounts globally
Reinsurance cover for terrorist attacks is still a debate

CHALLENGES FOR REINSURANCE INDUSTRY IN
INDIAN MARKET
CASE STUDIES: CASE 1 PREMIER INSURANCE
COMPANY IN GUJARAT
CASE STUDIES: CASE 2 REINSURANCE ON
TERRORISM
Earthquake in 2001 followed by floods
600 Crores of losses
Stop the business / receive help
GIC to Rescue
Socially being responsible by giving incentives and clearing out dues

WTC Attack
Effect on Indian Industry
What next???
Pool GIC, 4 Subsidiary & 6 Private companies
200 Crores Pool Which is too less
New development regarding this Debate still on