After the nationalization of insurance business, General Insurance Corporations (GIC) of India was made responsible for reinsurance protection. It has been providing its
services to the Indian market for the last 30 years. It has developed necessary skills and has qualified manpower to take care of the growing needs of the expanding Indian industry. It mainly covers only non-life insurance but now it has also started its business in life insurance sector.

As per the apex regulatory body IRDA (Insurance Regulatory & Development Authority of India), currently the domestic non-life insurance companies, both public and private, need to cede 20% of their business with GIC compulsorily. This limit will further be reduced to 10% from April 2008.

75% of the GIC's premium income comes from within the country.

The government may allow foreign reinsurance companies to set up branch offices in the country with certain regulatory restrictions. At present, foreign reinsurers are already allowed to set-up representative offices in the country.

Finance Ministry is considering relaxation in present FDI limit of 26% in relation to reinsurance companies. This will definitely improve the position for Indian partners as presently they have to bear remaining 74% against set capital requirement of Rs. 200 Crores. This restricts them to spread their wings globally.

Private sector companies backed by reinsurers will definitely get benefit, if deregulated environment as their retention capacity will improve and they will be able to sustain greater risk exposure.

Swiss Re, one of the largest reinsurance companies in the world, is planning to enter the health reinsurance business in India. It will provide advisory services on product design and development, pricing, and also offer its underwriting services. Its main objective is to support the entire value chain, from developing the product to the end customer and claim management.

Main Challenges

Adequate pricing for reinsurance products.

Reinsurance should provide for terrorism risk.

It should also provide for cyber terrorism.

One of the major challenges is to evolve a system to capture risk accumulation and catastrophic exposure data.

Managing reinsurance in electronic form.

Reinsurance companies have to be in pace with ever-evolving business and legal environment.

Low interest rates and decelerating economic growth.

Next

* Contributed by: -
Jaya Nema,
Faculty - MBA (Finance & Marketing),
Laxmi Narain College of Technology, Indore.