Excess capacity, low losses drive steep fall in reinsurance rates

Reinsurance rates have softened significantly, with property premiums dropping up to 90 per cent amid excess capacity, low losses, and intense competition

Reinsurance rates have softened sharply in the latest renewal cycle, with property premiums dropping by as much as 85–90 per cent, driven by lower loss experience and a surge in underwriting capacity, industry insiders said. Competition among domestic and overseas reinsurers has also contributed to the decline in rates. 

At the same time, brokers said rates have hardened in certain lines of business, such as aviation and other high-risk industries, while marine insurance premiums have remained broadly stable. However, insurers are reducing prices to retain and grow market share despite pressure on profitability. Even accounts with higher claims experience have seen a decrease in price.

 

A majority of India’s insurance market heads into facultative and treaty reinsurance renewals on April 1, covering nearly ₹3 trillion of the non-life insurance business.

 

Apart from the state-owned GIC Re, India also has two new domestic reinsurers — Valueattics Re and Allianz Jio Reinsurance.

 

“The steep decline in property pricing is attributed to high competition. Demand remained stable, but supply increased significantly as both existing insurers and new entrants tried to gain or retain market share. There were no market agreements and insurers quoted freely. The large property insurance market is estimated to be around Rs 4000–4500 crore rupees, and it is expected to shrink to about Rs 1500 to 2000 crore rupees due to the drop in premiums. These are approximate figures, as final numbers are still being determined.," Amit Agarwal, MD & CEO, Howden India. 

The total Indian non-life insurance market is estimated at ₹3 trillion, with expected growth of 7–8 per cent. However, the drop in property premiums is expected to reduce overall growth by about 1 per cent. Reinsurance (including treaty and facultative) is estimated to be about one-third of the total market at roughly ₹1 trillion.

 

“Some of the high-risk areas are being charged accordingly, so there is a divergence in rates across certain lines of business. Rates have softened in some segments, but less than others. There is excess capacity chasing the market, due to which rates have softened. However, these are non-sustainable rates and the industry cannot survive at these levels,” said Sandeep Dadia, chief executive officer and country head, Lockton India.

 

While corporates are expected to benefit from lower insurance premiums, executives remain concerned that such sharp declines may not be sustainable if claims rise or capital tightens.