GIC Re set to participate in reinsuring Kudankulam power plant units

State-owned reinsurer GIC Re will be participating in reinsuring the Rs 43,200-crore insurance coverage of the under-construction units of Kudankulam nuclear power plant. It has quoted a 15 per cent share of the risk, a source said.

But GIC Re’s quote is not the lowest as a global reinsurer has quoted a lower price. Also, there could be a 10 per cent shortfall in commensurate premium for the state-owned reinsurer.

“There is this power plant for which GIC Re had quoted. Somebody else has also quoted and eventually the final rate will prevail and everyone will participate. No reinsurer takes 100 per cent of the risk,” the source said. “With New India Assurance and nuclear power plant involved, GIC Re cannot say no to coverage,” he further said.

The negotiations for placement of risk have not yet taken place and are likely to happen soon, the source added. The erection-all risk cover for unit 3 and 4 of the nuclear plant is one of the biggest insurance coverages and will have multiple reinsurance players quoting for some portion of the risk.

An erection-all risk insurance offers protection to principals and contractors and also to manufacturers and suppliers erecting machinery and plants. This is against financial loss due to any sudden fortuitous and unforeseen causes resulting in loss or damage to the property insured at the project site.

New India Assurance is the primary insurer in the insurance coverage to the nuclear power plant. Like primary insurance, reinsurance is a mechanism for spreading risk. A reinsurer takes some portion of the risk assumed by the primary insurer for a premium. According to the regulations, GIC Re gets a certain cession of the reinsurance business as obligatory business domestically and has the first right of refusal for residual risks.

Currently, Indian general insurers have to cede at least 5 per cent of their business to GIC Re till FY22. The obligatory cession from FY23 onwards has been reduced to 4 per cent.

Earlier, GIC Re was given preferential treatment in taking reinsurance risk. It earlier had the first right of refusal in reinsurance contracts and only if it declines the risk, do foreign reinsurers come into play.

According to the revised regulations of the insurance regulator, companies can simultaneously seek terms from at least four foreign reinsurance branches. If the Indian reinsurers cannot match the rates quoted by their foreign counterparts, then they stand to lose business.