General Insurance Corporation of India (GIC Re), the national reinsurer which had reported a loss of Rs 2,468 crores in FY’12, would be registering a net profit of more than Rs 1,000 crores for FY’13 on the back of profits from the domestic operations and a claims-free year.
GIC Re would be announcing its financial result at the end of this month.
During 2012-13, GIC Re has been cutting its exposure in loss making segments including its topline in the international operations, cutting high commission for insurance companies on the domestic treaty business which are going to reap good results.
FY’12 was an exceptionally a bad year for GIC Re as there were five major international catastrophes that occurred during 2011, such as the earthquake in Japan, floods in Thailand, Australia and New Zealand which wiped away its profits besides the provisioning for motor third party pool. Fortunately, in 2012-13, there were no major catastrophes except the Hurricane Sandy Storm to which its exposure was very negligible, therefore the company would be posting profit for FY’13 including underwriting profits.
For FY’12, GIC Re had an underwriting loss of over Rs 4,000 crores.
During 2012-13, GIC Re launched a restructuring exercise of it international business and worked towards pruning the loss making businesses. As a result, going forward, international business will see a downward trend in topline but an increase in profitability.
For 2012-13, the domestic operations of the reinsurer contributed 60% of the gross premium, while the remaining 40% was from foreign operations.
Till last year, domestic operations was not making profit due to a high commissions paid by GIC Re on treaties that had a high Incurred Claims Ratios (ICR). Therefore, the company took several small steps to correct these practices. GIC Re linked the commission to the performance of the treaty. So if the incurred claim ratio was low in the domestic treaty business, it rewarded the insurer with a high commission rate which helped increase its profitability.
GIC Re pays a commission ranging from 5-50% to insurance companies on treaty businesses. Treaty reinsurance is a method of reinsurance in which the insurer and the reinsurer formulate and execute a reinsurance contract. The reinsurer then covers all the insurance policies coming within the scope of that contract.
Also, with the insurance regulator halving the requirement of compulsory ceding of reinsurance business by domestic non-life insurance companies to GIC Re from 10% to 5%, profitability of the reinsurer is likely to improve.
