‘Dominance won’t fade even if obligatory cession is zero’
State-owned reinsurer GIC Re’s net profit jumped 42 per cent to ~1,795 crore in the March quarter. For FY22, it was ~2,005 crore, up 4.4 per cent. Post the company’s earnings, DEVESH SRIVASTAVA, chairman & managing director, GIC Re, spoke to Subrata Panda on how it plans to increase the share of the life insurance business in its portfolio. The company also unveiled its plans in GIFT city. Edited excerpts:
The obligatory cession was reduced from 5 per cent to 4 per cent. What kind of an impact will that have?
The Indian general insurance market is about ~2.2 trillion, so about ~2,000 crore will be the impact on premiums. But this is a high-growth market, and so, most of the loss in premium due to reduction in obligatory cession will be offset by the growth itself. So, this ~2,000 crore is not something that is bothering us so much. Once we had a 20 per cent obligatory cession, which was reduced to 15 per cent and then brought down to 10 per cent. It was then brought down to 5 per cent, and it remained at 5 per cent for a very long time. Now, it has been reduced to 4 per cent. Of course, in the distant future, it will become zero. But that will not result in GIC Re’s dominance going away. We have diversified now and gone global. Obligatory cession is a source of huge amounts of data, which we should be trapping and that is on the cards. As the market matures, obligatory cession will come down to zero per cent.
Do you think there will be a rethink on the right of first refusal that GIC Re enjoys?
These are things that the regulator will decide. The regulator feels it is important for us to retain as much premium as we can in the country. This is something that is being done globally, too. We have the right of first refusal because of the role that we play in the market.
How do you want to grow your life insurance business?
We want to grow it slowly. It is about 3 per cent of our total book. In the long run, we would want to be at 10-15 per cent of our total business because it gets you stability. If you see, Swiss Re and Munich Re’s life portfolio is approximately 30-35 per cent. In life business, the whole thing depends on the mortality table. And, the basic brick work on which the edifice is resting is very stable. But, Covid-19 has changed the complexion. However, prices have moved up.
Will we see underwriting standards in the life portfolio easing a bit with the pandemic receding?
Not immediately. It’s not a button that we can switch on and off. It will take time and also we should be careful because the threat of Covid has not gone away completely, although it is a bit dormant right now.
Rates had hardened in the fire segment. Are there any segments you are looking to raise rates?
We raised rates in the fire segment because we feared that the market was on the verge of a collapse. And, if we had not stepped in, it would have been disastrous for the market. In the Indian market, the four big businesses are motor, health, fire, and agri.
The insurance regulator said burning costs cannot be quoted by insurers as the minimum rate. Does this mean that the premium will go down?
Yes, it would certainly bring down the property insurance rates because competition is going to step in. Rate stability will suffer for a while but then I think with the maturities that the firms have, it should come back. Initially, there would be a setback.
What are your plans for GIFT City?
We have a branch there right now and we want to start populating it with more personnel. Then, we will upgrade it to a subsidiary, and once we have done that, we will route our entire foreign operations through GIFT City.