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C. Shivkumar

BANGALORE, March 14

DOMESTIC general insurance companies have failed to finalise their treaty arrangements with reinsurance companies within the deadline set by the Insurance Regulatory and Development Authority (IRDA).

IRDA stipulates that reinsurance arrangements be finalised 45 days before the beginning of the financial year. Sources said that this deadline had long passed. Insurers are now expected to finalise their arrangements only towards the end of the month. Even so, the general insurance companies would be finalising their treaty arrangements only with the national reinsurer, General Insurance Corporation Ltd.

Even the private sector this year had begun preferring GIC as the reinsurer for treaty arrangements, the sources added.

Treaty arrangements with the foreign insurance companies were still in the process of discussions. The preferred foreign insurers include Munich Re and Swiss Re - the world's largest reinsurance companies.

The sources said that foreign reinsurers were imposing preconditions for such treaty arrangements. This includes complete detariffing of the insurance sector. This was because some of the premium quotes made by the domestic general insurance companies - - both private and public sector - - were not acceptable to the reinsurers.

The sources said that reinsurers had taken the stand in view of the low tariffs prevailing in the domestic insurance markets. On the other hand, reinsurance markets have hardened considerably during the last two years and continued to move northwards propelled by the volatile situation in the Persian Gulf region.

Reinsurance tariffs are already close to about 1.5 per cent of the sum insured. Besides, the sources said that regions like India had been declared as high-risk zones by the reinsurers. This would imply that the risk premiums would also be loaded on to the primary reinsurance costs, further escalating the premiums.

They said that at current tariffs prescribed by the Tariff Advisory Committee of IRDA, foreign reinsurers were insisting on riders. These riders are intended to restrict the liabilities of reinsurers currently faced with large underwriting losses on account of natural calamities.

Besides, reinsurers have also been hit severely by investment losses as a result of the bear hug in the global capital markets.

Consequently, the sources said, the riders included putting in place fresh caps on liabilities. Already, risks like terrorism and earthquake have been capped. Reinsurers are insisting on new caps for more natural calamities. These riders are being proposed after the floods in Europe last year.

These riders would mean that primary insurers would have to resort to more of facultative (Fac Re) or excess of loss reinsurance covers. Both these are spot covers. Fac Re is done on an individual risk basis. Excess of loss reinsurance is done for only the portion that is not covered by the treaty reinsurance.

The sources said the higher reinsurance tariffs would mean that corporates would have to incur higher insurance costs for the next financial year. Among the covers coming up renewal next year are those for some of the public sector power projects including that of National Thermal Power Corporation, which normally takes a mega risk cover.

Others coming up for renewal include some of the refineries in the country. Already some of the corporates have resorted to trimming insurance costs and preferred taking only plain vanilla covers.

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