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Nitya Varadarajan
Chennai, Dec 9: The lack of an Indian reinsurance company for life and general businesses in the context of privatisation would give rise to flight of capital from the country, senior industry officials say.
It is imperative, they feel, that the General Insurance Corporation be made the national reinsurance company (for life and general businesses) as quickly as possible.
According to Malhotra committee member and insurance actuary R Ramakrishnan, if a reasonable amount of reinsurance funds cannot be retained within the country, there was a danger of fly-by-night operators getting away with quick profits.
Some of the foreign collaborators have been insisting in their MoUs with local partners that reinsurance transactions be done only with their parent companies, according to general insurance industry officials.
This situation can be remedied if a national reinsurance company is set up at the earliest. ``It is our greatest misfortune that we do not have a reinsurance company now as we had beforenationalisation,'' said a senior United India official. ``This would have made the transition to privatisation easier.''
Ramakrishnan said that reinsurance with an Indian reinsurer (Re) after specified retention limits should be made mandatory by law, as is done elsewhere in the world like Korea, Africa, Singapore and Hong Kong. If the government was serious about getting insurance funds for infrastructure, the matter of reinsurance should not be left to be decided solely by the Insurance Regulatory Authority (IRA) as private companies would find ways of working around it, he said.
Today GIC is in a position to become a reinsurance company, according to insurance industry officials. Having the requisite capital and experience (overseas reinsurance) at its disposal, it could make a start with its existing reinsurance portfolio.
Currently, LIC is reinsuring with Swiss Re (which has set up an office here). The corporation's retention is very high. On a Rs 15,000-crore gross premium income annually, the netoutgo through reinsurance is a mere Rs 5 crore, Ramakrishnan said. The average policy size was small and therefore retention was high. The average policy size is around Rs 50,000, but the retention level is as high as Rs 10 lakh. Which means for policies up to Rs 10 lakh, LIC need not seek reinsurance abroad.
But there is much work to be done in the general insurance business which is not so simple. Solvency ratios have to be fixed scientifically, upon which retention limits and thereafter permissible reinsurance can be decided.
According to GIC's Vision 2000, a blueprint prepared to face competition after privatisation, the corporation has already envisaged the possibility of becoming Asia's premier reinsurance organisation. All it needs is the statutory support which would then delink it from direct insurance businesses such as aviation insurance, rocket insurance and so on.
Currently only 14 per cent of the gross premium goes out of the country by way of reinsurance (general businesses). The capitalneeded for a reinsurance company (Rs 250 crore would be adequate, Ramakrishnan feels), is available within the organisation. From 1991, GIC has been accepting inward reinsurance on behalf of its four subsidiaries.
In keeping with the aim of decentralisation, GIC has also freed its subsidiaries to pursue favourable terms for reinsurance on the basis of technical expertise acquired in a particular portfolio. Also the subsidiaries can choose how much to reinsure and with whom to reinsure, depending on market pulls. This is particularly relevant in big projects like refineries and power, where advance loss of profit premium is involved. The outgo in case of claims has to be in forex, so retention limits have to be carefully understood and applied.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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