Munich Re in withdrawal mode

Reinsurance renewals and corporate renewals for 2007-08 were concluded today. With insurers offering discounts in excess of 50 per cent on property premiums, Munich Re, the world's largest reinsurer, has withdrawn reinsurance support to several insurers while the day marked the entry of several foreign reinsurers such as Zurich-based Converium, SCOR, Swiss Re, Berkshire Hathway and Korea Re wanting to capture a bigger market share in India. These reinsurers have played a significant role in reinsurance treaties this time.

However, Munich Re officials refused to comment. Munich Re's approach was in line with the warning issued by its board director Karl Wittman during a seminar in Goa last year.

According to insurance officials, due to high discounts offered by insurers, the proportional reinsurance commission has come down by one fifth. In non-proportional treaties, the catastrophic cost has gone up by 5 to 10 per cent and the risk excel cost has increased too.

Besides renewal of reinsurance treaties, 60 per cent of the corporates renewed their insurance policies today. Corporate policies are basically fire, engineering policies. The day also saw a fierce price war between insurers to retain their existing clients. With larger balance sheets and greater retention capacity, public sector insurers have outperformed the private players in offering competitive discounts and bagged more corporate accounts.

For instance, a private insurance company lost GAIL to Oriental Insurance, Maruti Udyog to New India Assurance, Kohinoor Food (which has a turnover of Rs 600 crore) to Oriental Insurance. The price which Oriental Insurance offered was 17 per cent lower than the last offer made by the private insurer. Associated Cement Company has gone to New India Assurance from a private insurer.

Among the private players, Reliance General Insurance and Cholamandalam have been aggressive in quoting lower rates, said sources.

According to brokers, corporate renewals saw insurers breaching the Irda norm of not reducing premium rates by more than 51.25 per cent of the erstwhile tariff rates in several cases.

"Steep reduction in premium rates will put pressure on insurers' profitability, revenues. Besides, loss ratios for property and engineering lines of business will be higher and claims could be compromised. With 75 per cent of the market being under tariff, a price reduction of 40 per cent would lead to non-life market contraction of 20 per cent," said an analyst.

Corporates have made the most of the price wars between insurers.

Anup Mathur, vice-president of Howden Insurance Brokers, said, "Due to reduced premium rates, some corporates have increased their cover and sum insured. Others have bought additional covers such as business interruption policy, machinery breakdown, loss of profit arising out of machinery breakdown."

Large risk policies, with sum insured in excess of Rs 2,500 crore, where the pricing is determined by overseas reinsurers on a facultative basis, have also witnessed substantive discounts depending on the claims history and risk management. The Essar Group has taken a hull policy of Rs 3,500 crore sum insurerd with Oriental Insurance, and power policy of Rs 1,300 crore sum insured with ICICI Lombard.

Dinyan M Jivaasha, group head and senior vice-president of Essar Group, said, "A high degree of credibility and brand image in the market has helped us in getting very aggressive low rates on hull and power insurance renewals which are benchmark in the industry."