`Devesh Srivastava,CMD, GIC Re

Supply side issues like Russia Ukraine conflict, high global inflation, capacity crunch, shortage of capital, large losses including high losses from Hurricane Ian have forced global reinsurers to jack up their prices exorbitantly for the ongoing Jan 1 renewals

Fire and property covers set to get dearer by over 30 per cent along with tougher terms and conditions for the India Inc in 2023

“This time, global reinsurance market is a tough to deal with from cedants point of view.. Multiple negative trends have a triggered an unprecedented hard international market that can only be compared to the post Sept 11 developments. It will also impact Indian Apr 1 renewals in terms of pricing and capacity,” cautioned Devesh Srivastava,CMD, GIC Re

Mumbai:

The fire and property covers for the India Inc set to get dearer by over 30 per cent along with tougher terms and conditions in 2023 as an unprecedented hard international reinsurance markets, where a host of supply side issues like Russia- Ukrain conflict, high global inflation, capacity crunch, shortage of capital, large losses including high losses from Hurricane Ian, have forced global reinsurers to jack up their prices exorbitantly for the ongoing Jan 1 renewals.

Re/insurers said the rate hikes, that would hit the property catastrophic market, constituting 10 per cent Indian general insurance market, the most will also impact other segments as the overall global reinsurance capacity and capital have shrunk substantially.

Industry analysts point out in the ongoing Jan 1 renewals, there has been an average cost escalation of 50 to 70 per cent in the US markets and 30 per cent in the European markets even for the accounts without losses while the rates for cedants with losses have shot through the roof and now purely depends upon the whims and caprices of major reinsurers for their renewals.

Indian market, which is likely to reach Rs 2.5 lakh crore in FY 2022-23, has its renewals on April 1 and except for health and motor, insurers depend upon large reinsurance support for underwriting the rest of the business.

“This time, global reinsurance market is a tough to deal with from cedants point of view. Multiple negative trends have a triggered an unprecedented hard international market that can only be compared to the post Sept 11 developments. It will also impact Indian Apr 1 renewals in terms of pricing and capacity,” cautioned Devesh Srivastava,CMD, GIC Re.

“Reinsurers have been supporting the Indian market for many years, and have been paying significant amount of claims. With a hardening reinsurance market globally, the Indian market is also likely to face these conditions, and we expect of some tough discussions as part of the renewal season,’’ agreed Shankar Gargipathy, CEO & Country Manager, Lloyd’s India.

Analysts argue insurers paying higher reinsurance costs will have no options but to pass it on to their customers.

`For Jan 1 renewals, we are now providing capacity to our international clients giving preferences to our existing cedants and the trend will continue for Apr 1 Indian renewals. We will have to also pay higher prices for our retro in June 1,’’ said Srivastava,adding that quantum of price hike and other conditions for the Indian renewals will be better known nearing the date.

GIC Re, the 15th largest global reinsurer with a total premium of over $ 5 billion , renews 30 per cent of its annual business from the overseas markets during Jan 1 renewals. It has an Indian market share of around 61 per cent.

`Currently, we are in the process of renewing our covers for our international clients.The premiums have shot up significantly and no doubt GIC Re’s premium to liability ratio is showing a good trend from overseas Jan 1 renewals. We do provide large capacity in the international markets. In the current market situation, there is absolutely no competition among global reinsurers  who are almost quoting high uniform rates,‘’ said Srivastava.

Given the tough conditions at Jan 1 renewals and shortage of proportional capacity that is being witnessed elsewhere, for India reinsurers may insist on more retention and  trend will continue for non proportional arrangements, said an official of a foreign reinsurance branch(FRB) in India.

With proportional reinsurance coverage, the ceding company and the reinsurer share risks and premiums on a proportional basis.

At the same time as the non IIB (Insurance Information Bureau) rates are expected to drop 30-40 pct with corresponding increase of loss ratios the proportional treaty terms may witness significant reduction of commission levels and lowering of event limits. Insurers will have to discuss a lot on their own rating tables with reinsurers and the viability of same there of  to secure proportional capacity, said the official of Indian FRB.

Globally, there is likely a $25B – $50B shortfall in capacity. At least $20B of new property catastrophe capacity is likely needed in the U.S., and rising inflation means most cedants will strive to purchase at least 10 per cent more in reinsurance limits just to hold steady, Gargipathy said

With reinsurers cutting back catastrophe capacity and the ILS(Insurance-Linked Securities) market having less alternative reinsurance capital available again, alongside a general firming of prices, the prospects for 2023 and a truly hard reinsurance market make retention of more losses almost guaranteed for the majority of P&C(Property & Casualty) primary carriers, predicted Gargipathy.

Also, with the proposed revision to the order of preference regulations by the insurance regulator IRDAI which require 50 per cent retention of premiums by cross border reinsurers,(CBRs) there could be some pressure on available reinsurance capacity in the Indian market, particularly as some reinsurers have withdrawn from the catastrophe market, said Gargipathy.

Showing the fall of engagements of CBRs with the Indian market, in the year 2021-22, 290 CBRs participated in the domestic reinsurance business as against 332 CBRs in the year 2020-21, according to the IRDAI.

The reinsurers are of the view that the recent act of the IRDAI asking the reinsurers not to use the IIB rates(burning cost ) as the minimum rate, while providing the reinsurance quotes, will not achieve its desired results of bringing down the costs for the cedants in the present circumstances as there are no options available to them(cedants) but to pay higher prices for the reinsurance cover.

“Rather, with overwhelming negative global factors, the reinsurance cycle has now turned completely and one could easily say the hard international reinsurance market is here to stay for couple of years and Indian market will not be an exception,” said reinsurers.