Rekindling business strategy, regaining hope
Reinsurance is the insurance of insurance. Insurers protect their exposure through reinsurance. Insurance underwriters must realise the size of the risk they take, and know how to manage exposures and control losses. Reinsurers try to diversify their portfolio, geographically and product-wise, to derisk their book. GIC Re has had its share of problems and losses in the past. Now it is learning the lessons to regain its lost glory and become a reinsurer of choice in the Indian insurance market. It has been consistently profitable, its solvency ratio is very robust, and it has a good credit rating, which can help it to attract and write good-quality international business. Its future looks pink, says RAMASWAMY NARAYANAN, Chairman and Managing Director, GIC Re, in an exclusive interview with Ecostar Business. Excerpts:
Q: GIC Re is the only domestic reinsurer in India. It has experienced management by legacy now has a carefully diversified business profile, and has recovered considerably from a hit after the pandemic. Please comment on your new strength and compare it with other Indian insurers.
Ans: GIC Re is a dominant player in the reinsurance market, being the only Indian reinsurer in India. Like any reinsurer, GIC Re looks to spread its portfolio, both geographically, by writing about businesses from around the world and also about the different classes of business that we write about. In India, while we write all classes of business, in foreign markets, we are selective. In the foreign markets, we typically write property, engineering, marine cargo, etc. We avoid long-tail businesses such as marine hull, motor, and liability. We are very prudent about our business approach. As a commercial institution, our major focus is on the bottom line, and we are not very worried about topline growth. It is easy to grow top-line. But if that is not profitable, it is unworthy to look at it.
Q: GIC Re faced significant challenges following the listing of its shares in 2017, and the situation deteriorated further due to the impact of COVID-19. Could you elaborate on the causes of these difficulties and how the company has recovered from this shock or disruption?
Ans: We were on a high-growth road. We wrote certain businesses, which ideally we should not have – like marine and motor in the US or the agriculture business in India. The long-tailed nature of some of these businesses continued to hurt even after we stopped writing it. We have learned from past challenges and realigned our business to strengthen our financial position. We have also started looking at our business critically and moved out of the underperforming portfolio. Naturally, that led to a top-line degrowth. On the other hand, the capital released from these businesses helped us to grow into profitable businesses. Today, everyone in the organised is aligned to the goal of profitability.
Q: You have a substantial business coming in from overseas. What are your strengths in building overseas business? Have
you identified any particular geography or sector that may add better value and profitability to GIC Re?
Ans: One of our strengths, in domestic and foreign markets, is the relationship we have with our business partners. Our long-term presence in the overseas market helped us build great relationships. The reinsurance business relies heavily on long-standing relationships. We have consistently nurtured strong connections with our customers. Even after losing our credit ratings, which constrained our ability to write business, we maintained these important relationships. Now that we have regained our ratings to A- Excellent, e can leverage these connections to restart our growth journey.
Q: As you mentioned, you have lost some overseas business after a dip in your credit rating. Now you have regained your
credit rating. How important is the need for a good credit rating?
Ans: An international credit rating is important for writing business overseas because the regulator in that geography must be convinced about the solvency and the reinsurers’ capability to honour the claims. The rating agencies have multiple parameters in which they rate us,
and that gives confidence to our business partners as well as the regulators. When we regained our A- Excellent ratings, we could recover some of our lost business. We got to see a lot more business. But we have been very choosy. We use sophisticated models to analyse the data and understand the exposures we are taking.
Q: At the same time, you have added domestic business and rebalanced the business combination. Please comment.
Ans: GIC Re’s domestic business now makes up 75 per cent of its overall operations. While the domestic sector has grown, the international component has decreased due to a temporary drop in our credit rating. However, with our recent recovery of a strong credit rating, GIC plans to strengthen its overseas business in the coming years. Our long-term plan is to have a 50:50 domestic and international portfolio.
Q: GIC Re has scaled down loss-making contracts. What were your other strategies to cut the underwriting losses? Are there any mandatory underwriting responsibilities which are not lucrative?
Ans: There is no mandatory underwriting that has rendered losses in our book. As I mentioned earlier, it was our conscious decision to cut down loss-making treaties, and we decided that if a business would not give us a profit, we should not look at it. Being a reinsurer, we are in the business of taking risks and paying for losses, but not to make losses consistently in our book. At the end of the day, we must make money in every business we undertake. Of course, every business will not give a return in the first year itself. There may be some aberration due to unforeseen reasons. But over time, the businesses
must make money.
Q: Post-listing in 2017, the stocks of GIC Re fell sharply, leading to a loss of investors’ confidence. It faced the challenge of
further dilution of stake. How difficult was the challenge?
Ans: Post listing, we had some issues that weakened our bottom line, which intensified during the pandemic period. In another sense, that was a redefining era as we learnt things the hard way and took corrective actions. Now, shareholders and analysts seem to have taken note of our performance, which has given them confidence, and the share price is on the way up. In September last year, GIC Re’s OFS issue at the floor price of ₹395 per share was successful. Our constant interaction with financial market analysts and roadshows has convinced the market about our desire to better ourselves.
Q: Non-life business is the biggest contributor to the reinsurance business, accounting for as much as over 90 per cent of the total premium ceded. Is it a positive indicator when the economy expands? What are the opportunities you see for
GIC Re?
Ans: Even though the life insurance sector is much bigger than the non-life sector, the risk premium is comparatively small, and hence, reinsurance requirements are also less. Today, the total reinsurance premium in India is around ₹90,000 crore, of which around ₹84000 crore comes from non-life.
The non-life penetration today is quite low at one per cent. Since non-life insurance has a huge growth potential, the reinsurance business also has a corresponding growth opportunity. This augurs well for GIC Re, and we are very positive about the Indian market. Q: IRDAI has consistently reduced the mandatory cession to GIC Re from a high of 20 per cent to four per cent. Some insurers are now advocating for its complete elimination. What will be its impact on GIC Re’s business?
ANS: Mandatory cessions are not unique to our market. It exists in other international markets as well. It helps to retain the premium within the market and makes the market stable and strong. We believe mandatory cessions have a place in the Indian insurance market, and we continuously engage with industry participants as well as the regulator and the government on this subject.
Q: The climate crisis and economic losses, in whatever way, translate into insurance losses, as you rightly mentioned in your interview on AM Best TV last year. How are you planning to meet this challenge?
Ans: Climate risk is an ongoing risk. We have already seen a drastic shift in the weather pattern, and we believe this will continue. Be it flood, drought, or other natural calamities, the frequency and severity have increased. In such a scenario, exposure management is important. The use of sophisticated catastrophe models helps us keep our exposures to manageable levels. In India, the situation is quite different in the sense that in every catastrophe, the economic losses are very high compared to the insured losses. This puts pressure on the government to dole out assistance packages. We are in discussion with government agencies to see how we can create products beneficial for people, supported by the government. That way, the insurance and reinsurance industries will address the catastrophe risks.
Q: The Insurance Regulatory and Development Authority of India (IRDAI) has outlined a vision of “Insurance for All by 2047.” The Bima Trinity initiative is regarded as a transformative step for the insurance sector. What role will GIC Re play in contributing to the success of this national mission?
Ans: It is a good idea, and I am very confident, it would create a vibrant insurance market. Bima Trinity, a three-pronged initiative of IRDAI, consists of three components, which will increase insurance penetration. Of the three, while Bima Sugam is an open marketplace for insurance policies, Bima Vistaar is a comprehensive insurance product with life and non-life coverages. Bima Vahak is a women-centric field salesforce, especially in rural areas. I am sure the initiative will achieve the dream of insurance for all by 2047 and ensure that every Indian has some insurance coverage. This will ensure the continuous growth of the insurance and reinsurance industries and create employment opportunities for many people.
