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| 'Business is shifting from global giants' | |
| Q&A: Yogesh Lohiya | | Shilpy Sinha & Sidhartha / Mumbai December 25, 2008, 0:23 IST | |
 General Insurance Corporation, the Indian Reinsurer, is seeing a drop in its investment income this year due to the stock market volatility. However, the trouble at major insurance companies such as AIG is also presenting GIC an opportunity to expand its footprint globally. The company’s chairman Yogesh Lohiya spoke to Shilpy Sinha and Sidhartha about GIC’s plans and the impact of the terrorist attacks on Indian companies. Excerpts:
Are more companies now seeking terrorism cover?
All corporate houses have now realised that such a tragedy can happen. Refineries, fertiliser plants, power plants and ports have high risk value. They are now thinking of buying a higher cover.
Will premium rates be affected by the terror attacks?
Pricing and loss have some correlation. With these incidents, earnings (for insurance companies) will go down. There is a perception that falling premium rates (for general insurance) and the outlook on terrorism in India will affect insurance companies. These perceptions make some psychological effect in the international community, especially global reinsurers, and they rate the risk accordingly. In the Indian context, the terror pool has played an important role in the recent attacks. Thanks to the initiative of insurance companies and the persuasion from the regulator and the government, we have a pool like this.
What do you plan to do as the terror pool will be eroded after you settle the claims for Taj, Trident and Oberoi hotels?
The pool will not be eroded with this. We have a corpus of Rs 1,300 crore and the loss is estimated at around Rs 500 crore. We have sufficient protection. This coverage is available till March 31, 2009 and the renewal take places from April 1. With this loss, there will be an impact on the pricing by the reinsurance community in the world. Around 60-70 per cent. We will analyse the pricing and other things by March 31. Losses have taken place but we need not go on increasing the prices. With this tragedy, more people will seek terror cover so the volume will increase and the corpus will go up.
In the last eight years, since GIC was designated as the Indian Reinsurer, what are the changes that you have brough about and what is the strategy for the future?
When the market opened, new companies came in and we provided reinsurance support, especially to private insurers, though they did not have much capital. With offices in London, Moscow and Dubai, GIC has reached a point where it is the preferred reinsurer in the market. We are the 16th largest reinsurer in the world and the fifth largest in the aviation business.
In the next five years or so, we expect 50 per cent of our business to come from international operations, which is 27 per cent at present. We are specialising in aviation, energy and non-conventional financial covers such as credit insurance. We are also heading towards reinsuring life insurance risks and Takaful (Shariah-compliant insurance). We have started accepting the Takaful business through our Dubai office and will formally launch operations in a month or so.
At present, Indian companies have to mandatorily cede 10 per cent risk with GIC. How will you be affected once that stipulation goes?
Companies are placing more than the stipulated levels. They call it voluntary quota since they feel more comfortable dealing with us as we understands local conditions better. All companies are giving much more than the prescribed 10 per cent with some of them even offering up to 50-60 per cent (of the risk). If they opt to go to global players, it is their choice. We also have a problem since some of the business that comes to us is a losing proposition since the claim experience is not good.
You said that discounts on general insurance covers are also affecting the perception of international reinsurers. How long do you see companies offering steep discounts?
As long as companies can bear losses and reinsurers can support, they will do it. The moment the reinsurer starts leaking, companies will also start passing (higher costs) to customers. It is a matter of time. Already, companies are shifting their focus to retail. But if things continue like this then we may have to reduce the commission in April.
How are you dealing with the investment, especially equity, in this market?
We are very careful at this moment. Some stocks have come down by 30-40 per cent. Though the market value has gone down, our balance sheet is not affected since we go by the book value. Earlier, we reviewed our investment in equity on a monthly basis, now we are doing it may be on an hourly basis, at times. We are focusing a lot on debt.
So, will your profits be affected?
Last year, our investment income was around Rs 2,000 crore though the underwriting losses were around Rs 900 crore. This year, investment income will be lower but profits won’t be affected.
What is the impact of the problems at global giants such as AIG?
We are a sovereign-rated company. A lot of business is shifting to us, especially in this region and Africa, and we treat it as an opportunity. Companies such as AIG, and even Swiss Re, were participating in some treaties or were providing reinsurance support. We are under-leveraged as we have $10 billion in assets, have a net worth Rs 6,000 crore and a solvency margin of 4.6 against the stipulated 1.5. But we have to be selective and cautious.
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