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No underwriting of risk if there is no protection: Ashok Kumar Roy

Interview with Chairman and Managing Director, GIC Re

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Stung by record losses in 2011-12, General Insurance Corp of India (GIC Re), the designated company in the country, has learnt its lessons. Ashok Kumar Roy, its CMD, tells Niladri Bhattacharya that as a corrective measure, the reinsurer has already decided to stop underwriting retro business and revisiting exposure limits to a single country or single sector. Edited excerpts:

How was the financial performance during 2011-12?
The year 2011 has been the costliest year for reinsurers in Southeast Asia. The Japan earthquake was the largest in the history of that country. Thailand, hitherto considered a natural catastrophe-free country, received 42 per cent excess rainfall in 2011. This was a first in the last 35 years of that country’s history. This was the worst year in the history of GIC, where the net loss during 2011-12 stood at Rs 2,490 crore. went up by 16.56 per cent to Rs 13,617 crore from Rs 11,682 crore. Underwriting losses in domestic business came down by 33 percent, despite the fact that we have taken a hit of Rs 811 crores for the Motor pool.

What steps are you taking to ensure remains better prepared in the future, and starts making profits again?
The losses are segregated in two parts — retro and reinsurance. The main reason was that we did not have adequate protection. Having witnessed such a series of unprecedented events, we have revisited our business philosophy and fine-tuned the same to ensure such surprises do not rock our boat. First, our main focus would be on the domestic market. We would go slow in foreign markets. Second, we are controlling our exposure to any single country or single sector. Deductibles have also gone up, depending on the experience of each line of business. Last, we have decided to put break on the retro business.

What was the logic behind doing away with retro business?
Retro insurance is the business acquired by another reinsurance company. The main issue with retro insurance is that further protection is often not available and retention is higher. This makes it a very risky business, as in the case of claims, the impact would be very high. Over the last three years, we had grown this segment aggressively, as it offered higher commission. This was done in overseas business, where the combined ratio was very low. For example, in Japan, prior to the earthquake, the combined loss ratio was 40-50 per cent. So, we have decided in principle, if there is no protection available, we would not underwrite the risk.

GIC Re had plans to grow its share of overseas business to 50 per cent of total premiums. What is the mix now?
Currently, domestic business accounts for nearly 56 per cent of the total premium collection. The ideal mix for us would be 60:40, where domestic business would account for 60 per cent of the total premiums. The overseas business can catch up only when we go for inorganic growth.

But the loss ratio is very high in the domestic business also. How do you plan to manage that?
Combined ratio from the domestic business is 119 per cent. In India, risks are underpriced. Hence, we have decided to link the ceding commission to the performance of the insurance companies. We have started this practice in the current financial year, where the ceding commission varies from five to 35 per cent, depending on the underwriting practices and claim experience of the company. We are also going to play a bigger role in the domestic market to improve the underwriting and risk management practices.

In which lines of business do you think a correction in premium is needed?
Separately to sustain, each lines of business should be profitable. Irrespective of the competition, pricing should be adequate to cover the cost, so that the combined ratio is below 100. In India, engineering portfolio is stable, but fire, property marine needs correction. Health has seen some correction over the last two years, but it need more correction. Similarly, motor has been the worst in terms of combined ratios, but with the declined pool, it should improve as the prices would be revised every year.

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