GIC to be converted into reinsurance firm

GIC to be converted into reinsurance firm
EEB & AGENCIES

NEW DELHI/MUMBAI, AUG 29: "As per the law, GIC will be converted into the Indian reinsurance company slowly," Minister of State for Finance Balasaheb Vikhe Patil told reporters after an Assocham seminar on Insurance and Information Technology.

GIC's present business includes reinsurance for existing Indian players besides health and aviation insurance. At present, all existing companies namely Life Insurance Corporation and the four subsidiaries of GIC reinsures 20 per cent of the sum assured on their policies with GIC.

Patil, however, said it would be 10 to 15 months for the GIC to be converted into the Indian reinsurer after a decision is taken by the government.

"The government is currently thinking on amending the law pertaining to GIC," he added. The law provides that there should be at least one national reinsurer, who would carry on exclusively reinsurance business and is approved by the Central Government.

Patil said the Government has not received any proposal on the merger of the four subsidiaries of GIC -- Oriental Insurance, National Insurance, New India Assurance and United India Assurance.

Sources in the ministry have confirmed that finance minister Yashwant Sinha has cleared the proposal of delinking the GIC from its four subsidiaries, New India, United India, Oriental Insurance and National Insurance and convert it into a full-fledged reinsurance body called National Re.

Setting up of a National-Re is a regulatory requirement for opening up of the industry and GIC is the appropriate institution to undertake reinsurance activities. The IRDA Act stipulates that the reinsurance body cannot undertake direct insurance activities. "Waiting for the winter session of the Parliament to amend the Act, will only delay the issuance of the licenses to the new players, top officials of the ministry said.

IRDA which is expected to receive around 15 applications for first batch of licenses intends to issue the first license during October-November. Leading players including ICICI-Prudential, HDFC-Standard Life, Reliance, Dabur-Allstate have already applied for the in-principle approval of the regulatory body within the first ten days of opening of IRDA window for licenses.

After clearing the delinking proposal, the ministry is expected to take decisions on the second round of restructuring of the non-life industry by putting up of another coordinating body to replace GIC.

The ministry's options in this regard are twofold. Either to make each of the four subsidiaries independent or creating another coordinating agency to take charge of GICs operation minus its reinsurance activities.

The other major activities of the GIC are managing a combined investment portfolio of over Rs 20,000 crore, research and development of products and maintaining a common personnel network among the four subsidiaries. "A structure like Tata sons or SAIL is being contemplated to replace GIC,'' sources said. However any merger of the four subsidiaries or making them complete autonomous of each other are ruled out.

These companies are still 100 per cent Government-owned entities and accountability of these institutions to the Parliament has to be maintained through a coordinating agency. Merger of these institutions, each one of which is worth Rs 1,000 crore is not an easy option in the immediate run. The issue of merger is also closely linked to the decision on disinvestment which has been totally unacceptable to the Government for the time being.

"Merger of these institutions at this moment can create more disruptions in terms of personnel and relocations of branch and regional offices damaging their business rather than strengthening them," sources said. As a senior official of the industry feels merger at this moment of four companies will be like playing into the hands of multinationals who are eager to corner larger pies in the domestic market as quickly as possible.