South-east Asian currency crisis upsets General Insurance targets
Sitanshu Swain
MUMBAI, Jan 15: The ongoing currency crisis in south-east Asian countries has upset business targets of General Insurance Corporation (GIC) and its subsidiaries. The sudden depreciation of the local currencies against the dollar has reduced GIC's overall business capacity by over 20 per cent in terms of the company's inward reinsurance activities from the regions, a senior GIC official told The Financial Express.Of the four GIC subsidiaries, New India has the maximum number of branches in places like Bangkok, Hiroshima, Hong Kong, Manila, Osaka and Tokyo. GIC, which has modest reinsurance exposure in this area, has an exclusive subsidiary, India International Insurance, in Singapore. The general insurance major - which jointly with other multinationals undertakes reinsurance activities in the region - maintains all its outward and inward insurance accounts in dollar denomination. The company, which is now trying to gain "lost ground", is finding it difficult to do so as competition among the
multinationals has become cut-throat in the region in order to be able to corner the business which has become cheaper in dollar terms, said the officials. Foreign operations of the largest GIC subsidiary - New India - which earns more than 60 per cent its overseas premium from its Japanese operations, will record lower premium growth from the region in the current year. The premium on export sales from this region has already been reduced to a great extent on account of devaluation, said a New India Assurance official. "If one takes into account the insurance claim which is bound to go up during the year along with less investment income from the local investment, the company's overall performance will be dismal in this region,'' he added. Local investments are compulsory under the laws of the respective countries. New India keeps both local currency accounts as well as dollar accounts for its overseas operations. Before Hong Kong was handed over to China, New India Assurance had obtained the Reserve
Bank's approval to maintain a dollar account for one-third of its business in the region. The GIC outfit's plan to go public in Singapore will be delayed as the finance ministry is keeping a close tab on the currency crisis of the region. Meanwhile, the government-owned general insurance companies have expressed concern over the fact that the reinsurance cost of industry will substantially go up in the wake of Moody's announcement that it is planning to review the sovereign rating for a possible downgrade. ``Even with a small rise in the reinsurance cost the country will have to suffer a huge forex outflow,'' said a top official of New India Assurance, adding that a cost push in reinsurance could be expected very soon. The domestic general insurance industry reinsures the bulk of its big risks in the international market. ``The whole of the general industry reinsures almost 13 per cent of its total business,'' the officials said, adding that it can be pegged at around Rs 700 crore during the current
fiscal.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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