``We are more focused on improving the pricing and the other terms and conditions''
``When I began my term as the CMD of GIC Re, I had two goals for us- to be a Top 10 Global Reinsurer and to deliver consistent underwriting profit. And I am proud to say that GIC Re has been ranked as the 10th largest Reinsurer in the latest S&P rankings. I realize that it is not enough to be a `Top 10 Reinsurer’ only on the metric of size but to deliver value to our clients, shareholders and business partners.’’
What are the broad strategies now to take GIC Re ahead both in International and domestic markets?
We will discuss about the domestic market first.
I think, the fact that the GIC Re got listed was a very good thing and now look at the trends where many insurers are listing themselves. I think, it has changed the way the Indian insurance market is going to do business.
Indian market was a totally top-line driven market focusing on market share. This was justified in the particular phase of the market evolution where players needed to build critical mass and scale. Nobody had even an eye on the bottom-line. So this phase of the market involving consolidation and listing has brought a lot of focus on the bottom line profitability.
GIC Re is a company which has been doing quite well - growing consistently, growing profitability, growing its global footprint – organically and inorganically - but now with listing happening, we have gained more visibility both in the domestic market and the international markets and the listing requires us to analyze the way we are doing business with more focus on the bottom line - analyse our performance from the capital market angle.
Though, focus on profitability was earlier also there in GIC Re, now we have analysts and investors looking closely at how we’re doing business.
So, from a 100 per cent government-owned company, we have moved to a situation where apart from the government, we have others also analyzing our perfomance, which is a good thing. Like all listed companies, our performance is under microscope quarter-to-quarter.
Following listing, our experience showed us that the re/insurance is a new sector for the Indian capital markets and its stakeholders and the players in general have been quite careful about deploying their clients’ money and this is how it should be.
Quite a few of the investors and analysts we have met are in wait and watch mode before taking a plunge in this new sector.
It will take a little time for them to understand how insurance re/industry works. Probably, a quarter-to-quarter comparison may not work well for the reinsurers, especially, because there is a seasonality of business involved in our financials. In April 1 renewals, we tie-up all our Indian market business, while in Jan 1 all the international business comes in.
And, claims are not spread evenly throughout the year. So, you can actually not do a ``quarter to quarter’ analysis of our performance. Sometimes, in portfolio like crop, what has happened in 2017-18- till September, there were less claims. In the third quarter, most claims came in. So, the claims which should have been spread over the year got concentrated in one quarter.
So, a quarter-to-quarter comparison may not be the right thing for a reinsurance company, But, we are very positive that people can relate, the common man can relate to GIC Re activities, because he has put in his money.
I think overall there is an appreciation and recognition of the fact that GIC Rs is a sizable company with global standing. Now, we have grown to be a company with Rs 41,799 crore premium for FY 2018. When I took over, it was Rs 15,535 crore. from there, we grew to Rs 18,000 crore then to Rs 33,000 and now we are at Rs 41,799 crore.
How do you see this kind of super growth?
I think it is a matter of pride for the industry to grow at such a pace - partly crop scheme has helped, but more than half of the growth has come from all other segments. It is our very focused strategy on growth that has paid off. But, the most important thing is that GIC Re has also managed to reduce its combined ratio and pushed up the growth at the same time.
70 per cent of your business are coming from domestic markets?
Yes, we have a very formidable position in the market and it is really good.
Are you now very serious and focused in your underwriting norms?
Yes, very serious. All our underwriters have not only growth targets but also combined ratio targets. We were within 100 per cent itself for a few quarters. I think in the last quarters, we came to 101 per cent and I think even at 103.9 per cent it is not bad, given that if you see all the international reinsurers, had a bad year because of hurricanes - Harvey, Irma, Maria which generated huge losses.
The largest global reinsurers had combined ratios significantly higher than 100 per cent.
GIC Re was not an exception to international losses suffered by the re/insurance industry. However in the domestic market we have been profitable. Even though, we have had some losses in the agriculture portfolio, our entire domestic book was at 98 per cent as far as the combined ratio is concerned.
This is how reinsurers need to balance their books. It is across lines of business, across geographies. Indian market, you can't see it as one country, it’s like a subcontinent. You write across all over the country with diversified characteristics. And, I think for us, the spread is our strength, we need to manage the diversification.
What are your plans to diversify your business inside India?
In Indian market, across all companies, agriculture across the crop seasons, across all states - spread gives us confidence and stability. Our domestic business has become profitable and in 2016-17, our international was profitable.
In 2017-18, we have taken a bit of losses in our international business, but I think overall, we are able to balance it and going forward, we are confident of both - growth strategy and sustainable profitability.
How are you implementing target of combined ratio within the 100 per cent, are you shedding business or hiking rates?
Yes, we’re reviewing loss making treaties and negotiating better terms. Our Dubai office earlier had a lot of losses. They have pruned their book by streamlining all loss making treaties. Now, they are also becoming profitable.
Other thing is that we are holding on to pricing. This pricing power which GIC Re has in the market, as a national reinsurer, we want to exercise it judiciously, and across classes and clients and without any bias.
This is in the context of ``first to right of refusal’’, the GIC Re has while competing with other reinsurers in the Indian market?
We want to hold on to the pricing level. We as a reinsurer, know the market and we think that somebody has to improve the pricing in the market. We have the pricing power because we write across all companies Unless pricing level is held, sustainability of the market comes under pressure.
Just to clarify a bit more, we are more focused on improving the pricing and the other terms and conditions. So in the Indian market we may not be shedding business because we feel we have a moral responsibility towards the market.
And the market will eventually realise, though they will bear the pain for it in the short-term, they will eventually, I think, will thank GIC Re.
Any other strategies or the plans you in your mind?
Yes, the other focus which I'm bringing now is to focus on the analytics in the GIC Re . We are analyzing all the company performances, the treaties, the lines of business. So, we are going to have a separate vertical only for analytics.
Would do adopt analytics in your International business also?
Yes, internationally also, yeah. I'm going to put one exclusive general manager(GM) in charge of this project.
But, you have a general manager (GM) in charge of IT already?
Yes, we have. But this will be both, you need to have a real coordination within reinsurance and IT and analytics. You should know the business and then you should be able to analyze it.
We are investing a lot on this analytics project also, and we want to put our best talent also into this. That will work well. So, I think with these strategies like focusing on bottom line, improving the pricing, shedding off loss-making business, deploying data analytics will be our basic strategies for both our domestic and International operations.
Are the days cheaper insurance products and cut throat competition, that had been there post-detariffing in the Indian market over?
Those days are over now, almost. We are seeing a lot of market corrections also and I feel these new trends in the market will matter now.
Both, the biggest PSU general insurer and the private sector general insurer are listed now.
Insurance is a promise on paper. You are free to dole out promises without thinking that claims are going to come. We don’t know when claims will come, what claims will come. It’s a future thing. So people think, it's just a promise on paper, so they dole it out.
I think, that has to go, I think they have to get their analytics and data correct on that. So, companies have to play a big role in pricing the product adequately. So, I'm not saying that you are burdening the customer but the customer also should know that insurance comes at the right price.
Do you think this would work?
They are getting their acts together right now. It will also rub off on all the other players as well.
I think, otherwise also, now people are realizing their combined ratio is a very important component which you have to pay attention to, because analysts are not recognising that you are making net profit at the end of the day.
They’re asking, are you making underwriting profit? So that technical profit is now gaining importance.
And, rightfully so.
Can we expect more corrections or hardening of rates?
More correction. Yes
Technical correction also?
Definitely, yes. See, international markets have hardened after the losses, but I think that is always the practice in the international markets. They respect people who have paid the claims and they are willing to pay back.
They feel that within a payback period, they should pay. I think India is a very price sensitive market and customers tend to move from one player to another and keep on scouting for whoever provides the cover for less.
And even this merger trend, we are seeing now in the Indian market where three general insurance PSUs are going to merge indicate a positive market trend. Globally also, the same trend is there among the reinsurers.
Isn’t scouting for cheaper covers the right way for the customers?
I think, in the long run that may not serve anybody’s purpose because insurance after all is a business of relationships. This point will be driven home sooner or later by the big players because if insurers have to do business, they have to take reinsurance. Which reinsurer will make loss and support the market?
If the reinsurers are able to recover their money within a period of time, they will walk away from the market. So if you want a committed reinsurer then you have to be careful about the pricing.
Do you think higher pricing will come in the way of insurance penetration in the country?
Insurance penetration will also go up because of the government schemes. Prime Minister Fasal Bima Yojana has driven penetration of crop insurance among the farmers. Motor third party premium rating level is a case in point where IRDAI is raising rating level. Price has to be sustainable for a given class, else there will be cross-subsidy. Cross-subsidy is not equitable to a particular set of insureds.
Thus, in the interest of sustainability and equity, pricing has to improve which our rising income levels does not make insurance unaffordable. So in all, penetration cannot be adversely affected.
But there have been massive complaints about the way Prime Minister Fasal Bima Yojana (PMFBY) is being implemented by the insurers. Are there any problems in settling the claims?
I think, we have to sort it out. I was asking some insurers, did the states not pay the money? States have paid the money. GIC Re has also paid the money, how they can refuse to settle the claims with farmers. I think the insurers have to sort it out as there are no other problems.
Only issues could be in terms of reconciliation and information technology related which will get sorted out. But most importantly one has to look at the scale of the scheme before passing a judgment on it.
How is the situation in PMFBY during 2017-18?
Claims ratio is within acceptable range, but our other expenses add up. So on a combined ratio basis, on an average of two years, it is 105 per cent. If I exclude last year losses, this year combined ratio is 105 per cent. It is 105 per cent because this year, we have paid the last year’s losses.
Is it impacting your other domestic business?
See, still my domestic business is profitable with 98 per cent of combined ratio. That is a big achievement, because of the volumes and because of the way we do the business.
Will you grow your Crop reinsurance business further?
No, actually our exposure in terms of share in domestic market has come down from 52 per cent to 46 per cent. We are not so keen on increasing that given that now other reinsurers are coming in the domestic market.
So, let it be shared by everybody because it is a volatile line of business. We are streamlining our exposures.And would you like the 5% obligatory to continue for some more time?
That is something that we are examining now. As of now, it is continuing. Indian market is getting 5 per cent automatic capacity by way of obligatory cessions. They don’t have to scout for that capacity.
Domestic market is also doing well now. So, overall, I think for a couple of years, we would like this to continue.
Is obligatory business a profitable business?
Yes, earlier we had one off bad years, but this year, the domestic market is overall also positive. For us it’s profitable.
How do you see the new international players who have set up direct operations in India? Are they serious competitors for you?
They have just opened their operations in India. They want to be in the market for a long term. Market will benefit from their expertise. So, I think, year-on-year we are seeing more and more participation from these foreign players, though not at a level that will threaten GIC Re, but still we’re seeing increased participation and I hope that trend will continue.
Different reinsurers have different business strategies and there is a room for everyone, particularly for a growth market like that of ours.
And at the same time will you be able to match their expertise? Can you maintain your existing 60 per cent market share in India?,
That is our aim. We are now increasingly adopting global best practices. We are now utilizing catastrophe modeling tools and technical pricing tools and also strengthening our actuarial teams. We are leading quite a few of the Indian treaties and foreign reinsurers including big players follow us on those placements.
What kind of cyber insurance business, you have done?
So we are supporting cyber business though we have not been able do it that extensively.
What are you doing on the product front- supporting market to develop innovative products ?
See, apart from supporting the market with all these new products like title insurance, cyber insurance, we are also introducing a new product which is coming now into the market called IDI ( Inherent Defect Insurance).
That’s a new product which we are going to launch. So all the reinsurers are also collaborating in this.
If those international losses due the several Hurricanes wouldn’t have been there, you can be more profitable in 2017-18?
Definitely, we would have been more profitable. We would have made underwriting profit and my entire investment income would have been my profit. Our investment book is also doing well.
What is the overall yield on your investment?
Our yields are around 12 per cent. Excluding profit on sale of investments, it is 8 per cent,
We don’t do long term lending. We are more conservative and our book is small.
We have a very sound investment policy, very good expertise. Our exposure to equity is being streamlined in anticipation of IndAS and we follow IRDAI Regulations in regard to Investment policy.
We have a good debt book consisting of the long term government securities(g-sec) which is providing steady returns. Now, even the returns on g-sec are very good.
Our ROE has been in the range of 15-20 per cent and we will try to maintain that.
How you are going about in the International markets?
Now, with this Lloyd's Syndicate becoming operational from April 1, we feel that will be a big boost to our book. In fact, we’re starting slowly, but we’ll have better access to global markets.
Will you use the Lloyd’s platform to venture into different countries including China?
Yes, we can work on that platform. We will slowly start now.
What about US?
We are anyway at present writing business from the U.S. market and want to increase our exposure further in the US market. To have an office in US, is our medium term goal.
Is Dubai your largest operations?
Yes, they have also turned around. They are at around 100 per cent combined ratio. It is a big achievement because they have come off loss making treaties. We allowed them to degrow.
You have the ratio between the domestic at international business at 70:30 . So how would you like to continue that?
Ideally, we want to focus more on international business. We want our overall ratio between international and domestic business to at 40:60at least. But , now are expecting large health business out of the proposed National Health Insurance Scheme(NHPS).
What is your take on the pricing of National Health Protection Scheme?
Health is not a line which needs much reinsurance as there are small ticket policies. We don’t have big health arrangements with the companies as such. But, the insurers which intend to participate in the NHPS have started approaching us because they don’t know how much their losses will be. We will be very much willing to provide them reinsurance covers.
But, we will be very careful about how we restructure the reinsurance with them.
We want them to have more skin in the game, which will incentivize them to carry out effective claim management. We will want them to be in control and if they need some reinsurance to top it up then we will help, that’s all.
Are FIIs are buying your stock?
So, we’re seeing them coming in. We’re seeing a lot of the mutual funds buying our shares. None of the FIIs have sold off and the new FIIs are coming in.
How do you see your share price now?
It has stabilised now. Now, it should slowly go up. Our biggest comfort is my 100 per cent employee subscription . My employee subscription was 100 per cent - how many organizations have this kind of employee subscription.
I would leave it to market to deal with that. In the short term, it is the demand – supply and sentiment driving the share price and here is the sector which investors and analysts are yet to fully warm up to and here is the global behemoth which cannot be easily benchmarked and peer-compared.
Fundamentals of GIC Re should give comfort to any analyst for investment with the right time horizon.
GIC Re is now the 10th largest Global Reinsurer. Did you expect it to happen so soon?
We are indeed elated to be the top ten league of the world’s largest reinsurer.And it will be a constant endeavour at GIC Re to maintain our dominant market share in the Indian market while scaling up further on the global rankings.
When I began my term as the CMD of GIC Re, I had two goals for us- to be a Top 10 Global Reinsurer and to deliver consistent underwriting profit. And I am proud to say that GIC Re has been ranked as the 10th largest Reinsurer in the latest S&P rankings. I realize that it is not enough to be a `Top 10 Reinsurer’ only on the metric of size but to deliver value to our clients, shareholders and business partners.’’
``Syndicate 1947’’ , is a key part of that plan, having a presence in the global hub for specialist insurance and reinsurance that is Lloyd's, will help us grow our expertise and product offerings.