‘There is no room for a reinsurer to pass on risk’

Munich Re is the largest foreign reinsurer in India. Of the current ~65,000-crore reinsurance business in India, this company has the largest presence in the market after state-owned GIC. In conversation with Subhomoy Bhattacharjee, its Chief Executive of the India branch HITESH KOTAK says the JV model cannot take care of the capital requirements needed for running an insurance business. Edited excerpts:

How is the Indian reinsurance market looking right now?

In 2017, we got permission to set up a full-fledged branch in India. This option was better than the joint venture (JV) model we were restricted to. The JV model cannot take care of the capital requirements needed for running an insurance business.

Our application with the Insurance Regulatory and Development Authority of India (Irdai) to convert to a branch was the first in line. Since then, we have become quite local, with a staff strength of 86. Last year, we did ~4,900-crore business. To put the size of our portfolio in context, the nonobligatory business of GIC is around ~28,000 crore. So yes, we have had to run quite a distance to reach a comparable size.

What about the regulatory side?

A reinsurer is the last end of the chain in the insurance business. We have to be very aware of the risks we take on. There is no room for the reinsurer to pass on the risk. We have to be clear of the dynamics of the risk. In this context, the Indian regulatory environment has its own peculiarities. We recognise them, in terms of regulations.

Foreign reinsurers are gaining speed in the Indian market. Because of the sheer size of the Indian market, top reinsurers came in very early once the market was opened up. We have to work with Irdai and the Department of Financial Services on how regulations can be streamlined further. An issue there is the order of preference; it is a contentious one and was supposed to be reviewed in three years. Still, for reforms, we have to be patient. In the Indian market, according to the Irdai regulations, GIC has the first right of refusal whenever an insurance business is offered for reinsurance.

There have been media reports about how state governments view crop insurance.

Crop is an important part of our business. We invest a lot of talent into this business. Our agriculture team includes agro scientists, specialists from the India Meteorological Department, and actuaries. We sometimes accompany insurance companies to their meetings with state governments, where we demonstrate technology proof, show evidence to buttress the position of insurance companies. We have sharp pixel images that generate accurate data on losses. It is not easy to push us back. These are complicated conversations and there are challenges.

We work with all states currently offering crop insurance. Contrary to perception, states recognise the challenges in this line of business. On the ground, they also want to cut losses. None of them are asking us to support fraudulent claims.

Is India a high risk territory for insurance losses, like weather or Covid?

On natural catastrophe, we can leverage the strength of our global group. Our global ratings and balance sheet help us do that. Yet from that perspective, so long as our returns are in line with what is happening globally, we are fine. I think deploying capacity is not difficult for us or for some of our big competitors. Yes, the learning curve is happening. I would say in other countries, it took 10 or more years for insurance learning to happen. We must factor those in. On Covid-related risks, we want to wait till September/october to see how the economy bounces back. We will then get a sense of how reinsurance rates will pan out next year in March/april.