GIC downplays deal scrutiny

Calls it a 'procedure', says there was no loss through the cancellation of deal

General Insurance Corp of India (GIC) on Wednesday said the government’s examination of its deal with the Warren Buffett-led Berkshire Hathaway was merely a “procedural” issue. India’s sole reinsurer walked out of the deal with the US-based company within six months, as it became costly.

“The government is examining the deal only to understand how and why was the deal cancelled. It’s a procedural matter to merely understand the circumstances of the deal and to ensure that such cancellations are avoided in the future,” said A K Roy, chairman and managing director of GIC.

GIC had entered into the arrangement with National Indemnity (Berkshire Hathaway) through broker K M Dastur in August 2012 for pure retrocession (reinsurance) business, but cancelled it on December 5, 2012. For the deal, GIC had paid $15.2 million (Rs 82.5 crore on Wednesday) premium towards reinsurance business cover.

“There was no loss at all. There has been some misunderstanding. We came out of the deal as after the costs benefits were analysed, we felt it was not in our favour. So, we felt it was not viable to transfer the risks,” Roy said in a written reply to the Rajya Sabha, on a question whether GIC was cheated to the tune of Rs 500 crore.

The pure retrocession cover means accepting reinsurance business from global reinsurance companies by Indian reinsurers (GIC). In 2011, GIC had faced huge losses due to unexpected catastrophes. After this, it had decided to accept pure retrocession business from global reinsurers only after getting adequate protection cover. For this cover, it got an offer (the only offer) from National Indemnity (Berkshire Hathaway) through K M Dastur and the same was accepted later.

GIC is engaged in doing reinsurance business both in India and abroad and is present in more than 150 countries. About 45 per cent of its business comes from outside India and it is looking to achieve a 50-50 mix. For this, Roy had earlier said GIC’s growth in international markets had to be faster than that of the domestic market.