Tag Archives: Reinsurance

Govt. Refuses Sovereign Guarantee For Crude Oil Imports From Iran

Posted on June 12, 2013 by
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crude-oil-refinery-insurance-pool

In the wake of US State Department renewing sanctions on Iran, the Indian government has said that it will not provide any sovereign guarantee to domestic refineries for crude oil imported from Iran.

In April, the government had proposed to set up an Rs 2,000-crores insurance fund to provide cover to domestic refineries which process crude oil from Iran.

The financial services department has communicated to the ministry of petroleum and natural gas that it has agreed to set up the pool. It is awaiting their contribution and response.

The insurance pool fund will be created by contributions from both insurance companies and the oil industry. The four PSU general insurers –New India Assurance, National Insurance, Oriental Insurance and United India Insurance will be the part of the pool.

Currently, Indian general insurers provide cover to oil refiners and then re-insure the risk with global re-insurers. But under the US and European sanctions, the global reinsurers provide re-insurance with sanction clause, which limits the amount to be paid in case a claim arises.

The government has clarified that the reinsurance part which has been taken from the UK and the US is only for the limited amount, not the entire value of the refinery. So, for that amount, government will cover it. For the rest of it, even today, there is no sovereign guarantee.

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GIC Re Hopes To Post Profit In FY’13

Posted on May 9, 2013 by
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General Insurance Corporation of India

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.

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IRDA Planning To Tighten Product Approval Process Further

Posted on April 30, 2013 by
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IRDA

The Insurance Regulatory and Development Authority (IRDA) is planning to tighten the product approvals process further.

As per the new norms proposed by the IRDA and intimated to the insurers last week, an insurer will now have to demonstrate how its product complies with the regulatory norms.

Insurers need to justify the financial viability of the products and requirement of such a product in the market before filing the product.

Filing of the product will be permitted only after getting the first round of approval.

The scrutiny process may involve detailed examination of products, wherein an insurer will have to justify how the product is suitable for the targeted customers and whether it meets their genuine needs.

Insurers will also be asked to establish the reasonableness in the death cover and the premium charged for the product.

The main objective of this approach is to protect the interest of all stake holders.

The proposal for a new product will also include

Reinsurance arrangement, pricing assumptions, target segment and investment philosophy of the product.

This will be applicable for both life and non-life products.

IRDA believes that these steps will help expedite clearances – to a couple of weeks compared with as long as six months earlier.

These steps will ensure consistency in the products and make the product approval faster.

All this means that insurers will now have to be cautious on proposing the products. Insurers will have to do a lot of homework and market research before floating the product.

With the new mechanism in place, the insurers will have to disclose the amount of business generated in each category of existing insurance products before proposing a new product under a particular category. The regulator will take into account the previous track record of the product before giving a green signal for product filing.

Recently, IRDA put out an exposure draft requiring life insurers to submit a product planner before the beginning of every financial year. This will give the regulator an idea of the number and type of products that will come up for approval during the year.

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Reinsurers Worldwide Reached Total Capital of $505 Billion in 2012: Study

Posted on April 10, 2013 by
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Reinsurance

The total capital of the world’s reinsurers increased by an estimated 11% during 2012 to reach a record $505 billion, according to Aon Benfield’s latest aggregate study.

Aon Benfield, the reinsurance brokerage arm of Aon Plc, studied financial reports of 31 leading reinsurers and found that their capital increased by 12% to $313 billion by the end of 2012.

This increase was driven primarily by net income of $29.5 billion and $15.9 billion of unrealized capital gains, noted Aon Benfield.

All 31 reinsurers covered by the Aon Benfield Aggregate Report reported profits for 2012, with an overall pretax profit of $35.7 billion, up from $15.6 billion in 2011.

The property/casualty combined ratio of the 31 reinsurers studied was 92.6% for 2012, down from 105.1% in 2011.

The contribution to the combined ratio of catastrophe losses in 2012 was 7.5 percentage points, compared with 20 percentage points in 2011.

Some 90% of catastrophe losses recorded in 2012 were from the United States, with losses from superstorm Sandy and US drought and resultant crop-related losses two of the largest contributors, noted Aon Benfield.

The contribution of favourable development of prior year’s reserves to the combined ratio was 4.3 percentage points in 2012, down from 5 percentage points in 2011.

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IRDA Relaxed Foreign Reinsurance Limits For Domestic Insurers

Posted on April 1, 2013 by
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Reinsurance

The Insurance Regulatory and Development Authority (IRDA) has relaxed the limits for domestic insurance companies to take reinsurance cover from a foreign reinsurer. While the earlier norms allowed an insurance company to reinsure up to 10% of risk with a single foreign reinsurer, the new norms relax the reinsurance limits further based on the financial rating of the reinsurer.

Reinsurance is insurance for an insurance company.

According to the new regulations, an insurer can reinsure 10% with a foreign reinsurer having a rating of BBB from Standard & Poor’s, 15% with a foreign reinsurer with ratings greater than BBB and up to AA, and 20% with those having a rating greater than AA and up to and including AAA. In case, an insurance company wants to reinsure more than these limits, it would require specific approval of the IRDA.

Insurers say that with non-life insurance companies suffering from high underwriting losses and cut throat competition, global reinsurers are reluctant to touch the Indian risks. Therefore, the new norms will force domestic insurers to cut their underwriting losses.

Given the Indian circumstances of cut throat pricing among non-life insurers and high underwriting losses, only poorly rated reinsurers (those rated BBB) have an appetite for the Indian business. The new norms will bring pressure on the Indian insurers to cut their losses to make good rated foreign reinsurers accept their reinsurance programmes.

Treaties are one year old reinsurance contracts between a reinsurance company and an insurance company stipulating the technical particulars and financial terms applicable to various classes of business.

Insurers say that IRDA has slightly relaxed the reinsurance norms. However, there is a need for further relaxation. These percentages are calculated on total foreign reinsurance. Instead, it would have been more appropriate to put it as a percentage of the total reinsurance including domestic reinsurance.

An insurance company will need six to seven sizable foreign reinsurance companies on their panel, which seems difficult at this point of time. Also, new norms state that when an insurer file a (reinsurance) programme, it  will need a board approved catastrophe modeling to show that its solvency is not affected.

Interestingly, IRDA has asked insurers to seek reinsurance support first from domestic reinsurer, General Insurance Corporation of India (GIC Re) and only if they cannot agree to GIC’s terms, they should seek reinsurance support from foreign reinsurers.

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General Insurers Get More Choice In Picking Reinsurers

Posted on March 15, 2013 by
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more-options

The Insurance Regulatory and Development Authority (IRDA) has halved the requirement of compulsory ceding of reinsurance business by domestic general insurance companies to General Insurance Corporation of India (GIC RE).

According to IRDA, a general insurer has to now place 5% of its total risk instead of the prevailing 10% with GIC Re.

The move to reduce obligatory cession is expected to create a larger space for private and foreign reinsurers.

Apart from the obligatory 5% cession to GIC Re, each insurer will be able to take call to reinsure the rest with any reinsurer.

The compulsory cession was 20% earlier, which was brought down to 15% in 2007 and 10% in 2008.

As general insurers were bleeding with underwriting losses, such 10% obligatory business had become a liability for GIC Re in the last few years.

IRDA is expected to soon take a call on the commission to be paid by the GIC Re to insurers on the obligatory cession.

In December 2011, the commission issue had become the bone of contention between IRDA and finance ministry. According to finance ministry, the general insurers need not be paid a commission, given that reinsuring a portion of their business with the state-owned firm was mandatory.

Last year, GIC Re paid minimum 15% commission on 10% obligatory ceded business to general insurers.

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India Set to Halt Iran Oil Imports over Insurance: MRPL

Posted on March 11, 2013 by
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Oil-refinery insurance

India is set to halt all crude imports from Iran because insurance companies in the country have said that refineries processing the oil will no longer be covered due to the western sanctions, Mangalore Refinery and Petrochemicals Ltd (MRPL) has said.

MRPL said that if cover is not available then all Indian refiners have to halt imports from Iran or else they will have to take a huge risk.

India’s is Iran’s second largest buyer, taking around a quarter of its oil exports worth around $1 billion a month.

MRPL is India’s biggest buyer of Iran crude.

It was not immediately clear why this has become an issue now, several months after Europe and U.S.A. introduced tough sanctions aimed at Iran’s oil trade to force Tehran to the negotiating table over its nuclear programme.

But in a letter in January 2013, country’s only reinsurer, General Insurance Corporation of India (GIC Re) told the General Insurance Council, an industry group, that it had dawned on insurers that cover and losses on processing the crude would not be payable by reinsurers due to existing sanctions.

Hindustan Petroleum Corporation Ltd (HPCL), Iran’s third biggest Indian buyer had warned last month that insurers may withdraw cover because of sanctions.

MRPL has issued tender to buy three cargoes of 650,000 barrels of crude to load in April. Two of the cargoes are high sulphur and could be used to replace Iranian oil.

Oil is Iran’s biggest income generator so a halt in sales to India would be a heavy blow for Tehran. Sanctions more than halved the country’s crude exports in 2012.

In January 2013, India imported over 286,000 barrels per day (bpd) of Iran’s around 1.1 million bpd total exports.

This is the first time that insurance problems have had a direct impact on refineries processing Iranian crude.

The lack of insurance cover dates back to April 2012, but was clarified by insurers only in February 2013.

MRPL has written to India’s federal oil ministry asking for an alternative insurance mechanism.

Insurers rely on European reinsurance markets to hedge their risks. European sanctions have blocked European maritime reinsurers from any involvement in insuring shipments of Iranian oil.

That forced a temporary halt in mid-2012 to imports by two of Iran’s other top Asian buyers, Japan and South Korea.

India’s government stepped in to provide emergency insurance but it was a fraction of $1 billion liability coverage that a supertanker would typically need and have rarely been used.

In the first ten months of the current fiscal, India has reduced Iran crude imports by nearly 22% on year-on-year basis.

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IRDA Published 5 Key Reforms in Gazette

Posted on March 6, 2013 by
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IRDA

The Insurance Regulatory and Development Authority (IRDA) has published in the gazette of India five key reforms related to the insurance sector, including new guidelines for insurers and reinsurers.

The reforms are investment regulation for insurers, IRDA (Life Insurance – Reinsurance) regulations; places of business regulations; IRDA appointed actuary amendment regulations and regulations for the standard proposal form.

According to the actuary amendment regulations, non-life insurers will also have appointed actuaries as full time employees.

General insurers have been given two years time to appoint those actuaries as employees.

According to the gazette notification, an appointed actuary should have a minimum experience of ten years, out of which two years must be post-fellowship qualification and at least two years experience must be in life, non-life or health insurance.

The new standard proposal form norm call for a common proposal form for all life insurance proposals.

According to the investment regulation, insurers could invest from 10% to 15% in equity, based on their investment assets. The limit is 10% for investment assets less than Rs 50,000 crores, 12% for investment assets for Rs 50,000 crores to less than Rs 2.5 lakh crores.

For companies with investment assets of more than Rs 2.5 lakh crores, the limit is set at 15%.

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New Reinsurance Rules for Life Insurers

Posted on March 6, 2013 by
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Reinsurance rules

The Insurance Regulatory and Development Authority (IRDA) has told life insurance companies to reinsure with domestic reinsurers a percentage of the sum assured on each policy.

The IRDA (Life Insurance-Reinsurance) regulations, 2013, said this percentage would be notified by the regulator and not exceed 30% of the sum assured.

Indian life insurers have reinsurance contracts with the sole reinsurer, General Insurance Corporation of India (GIC Re). However, there was no instruction to reinsure a percentage of the sum assured with it.

Further, IRDA has asked the life insurers in their reinsurance programme to have the maximum retention within the country.

The gazette notification says that the retention limit ranges from Rs 5 lakh to Rs 30 lakh, based on the age of the insurer and the type of product.

For instance, a pure protection one such as a term insurance or personal accident product would have a retention limit of Rs 5 lakh for a zero to three year old insurer. The same products for a 12-15 year old insurer would attract an Rs 20 lakh retention limit.

IRDA has also told insurers to have reinsurance arrangements with only those foreign reinsurers, with a minimum credit rating of BBB (with Standards and Poor’s) over the past five years.

IRDA has also said that if the reinsurance premium to total premium ratio exceeds 2% for savings and 30% for term and health insurance, the detailed workout for each product is required to be reported to it.

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Insurers can Offer Cover to Indian Refineries for Iranian Crude

Posted on February 19, 2013 by
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IRDA

Insurance Regulatory and Development Authority (IRDA) has enabled Indian insurers and reinsurers to help cover Iran crude oil import by Indian refineries. This implies that Indian refineries can ship oil from Iran with appropriate insurance cover.

India’s sole reinsurer, General Insurance Corporation of India (GIC) had earlier said that they have submitted a paper to the General Insurance Council calling for some clarity related to refineries importing Iranian crude.

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