Reinsurance

1. Reinsurance in India
In India, the period from 1951 onwards was marked
by a rapid development of insurance business, made
possible by large scale economic development.
The increased business all the more required the
need for reinsurance protection which of necessity
had to be arranged in foreign markets mainly British
and Continental. The problem of conserving foreign
exchange was acutely felt in India like any other
developing country and the government directed
reinsurance operations accordingly.

2. a) Reinsurance before Nationalization
i. Statutory cessions
In 1956: India Reinsurance Corporation, a professional
reinsurance insurer was formed by general insurance
companies operating in India and it started receiving
voluntary quota share cessions from member companies.
In 1961: The government made it compulsory by statute on
the part of every insurer to cede:
 20% in Fire and Marine Cargo,
 10% in Marine Hull and Miscellaneous insurance (other
than Credit and Solvency) and
 5% in Credit and Solvency business

3. To approved Indian reinsurers, namely:
 India Reinsurance Corporation,
 Indian Guarantee and General Insurance Company
The said percentages were to be allocated equally between
the two reinsurers.
ii. Pools
In 1966: Indian Insurance Companies Association initiated
the formation of Reinsurance Pools in Fire and Hull to
increase the retained premiums in the country.
As per the Pool Schemes, specified percentages were
required to be ceded by member companies to the
respective Pools, which were managed by the two statutory
reinsurers, namely:

4.  India Reinsurance Corporation,
 Indian Guarantee and General Insurance Company
The companies were given shares by way of retrocession in
the pooled business protected by excess of loss covers.
b) Reinsurance after Nationalization
i. In 1971: At the time of nationalization of general
insurance business in 1971, there were 63 domestic
insurers and 44 foreign insurers operating in the country
and each insurer had its own reinsurance arrangements.
ii. In 1973: The above companies were reconstituted into
four companies, namely:

5.  National Insurance Co. Ltd.,
 The New India Assurance Co. Ltd.,
 The Oriental Fire and General Insurance Co. Ltd. (now
known as Oriental Insurance Insurer Ltd.) and
 United India Fire and General Insurance Co. Ltd. (now
known as United India Insurance Insurer Ltd.)
These four companies were thus left to operate in the
country as subsidiaries of a holding insurer known as
General Insurance Corporation of India (GIC) formed under
the General Insurance Business (Nationalization) Act, 1972.

6. c) Reinsurance after Liberalization
i. As a part of the process of liberalization of the insurance
industry in India, the Insurance Regulatory & Development
Authority (IRDA) is vested with the authority of regulating
and controlling the conduct of insurance business in India.
IRDA frames rules and regulations for various aspects of the
insurance business including reinsurance.
ii. The four subsidiaries viz. National, New India, Oriental &
United India, have been demerged from GIC and private
insurance companies have been allowed to do insurance
business after obtaining license from IRDA.

7. iii. Each insurer in India is free to structure his annual
reinsurance programme in compliance with regulations and
solvency requirements.
iv. The programme needs to be approved by the IRDA and is
subject to monitoring for placements with no one reinsurer
rated as per regulations, receiving cessions equal to or not
exceeding 10% of all premium ceded overseas, subject to a
maximum of 20%.
v. One of the key goals of regulations is to assist the Indian
market retain maximum premium prior to reinsuring
overseas. In this regard the role of GIC Re is significant as a
source of treaty reinsurance support.

8. vi. Each insurer, including the life insurers, can define his
inward reinsurance underwriting philosophy and with due
approval of the same from the IRDA write inward
reinsurance. This is another distinctive development
following liberalization.
d) GIC Re
i. GIC Re became the sole statutory reinsurer for the Indian
market. As a reinsurance insurer GIC Re is governed by
IRDA regulations.
ii. An important outcome following liberalization and
demerger is the reorientation of GIC Re from being a
traditional regional reinsurer to a global reinsurer. GIC Re

9. writes increasing inward reinsurance from overseas
markets.
iii. GIC Re is expanding its overseas branch operations and
sourcing inward reinsurance in London and Dubai and
other offices being set up to expand business. The target is
to balance the share of domestic and business.
iv. GIC Re is ranked within the top 20 reinsurers and rated
‘A’ - by A.M.Best.
GIC Re has retained this rating consecutively since
liberalization.
v. GIC Re is also entrusted with responsibility to manage
and administer Pools for the Indian market. As of 2010 the
GIC Re is entrusted to manage and administer:

10.  Indian Motor Third Party Declined Pool
 Indian Terrorism Insurance Pool
 Indian Marine Hull Insurance Pool
Under the direction of the Government of India, the Indian
market is pursuing to establish:
 Natural Catastrophe Pool
 Nuclear Risks Liability Pool
GIC Re is designated manager for the above pools also.
GIC Re has developed in collaboration with expert firms
modeling software to determine aggregate loss exposures
arising from Earthquake and Windstorm.