In contrast to last year’s renewal, 4/1 saw a resurgence in property catastrophe capacity. While there were few new players in the market, existing reinsurers demonstrated an increased appetite to grow their property catastrophe books in India. However,despite excess capacity reinsurers remain disciplined
April 1 is the main renewal for India, with almost all the country’ property/casualty insurers purchasing reinsurance protection, across all lines of business.
With a fast growing economy, a pro-active regulator, and an appetite for technology and innovation,
India’s increasingly liberalized insurance sector is on an upwards trajectory.
India is predicted to have the fastest growing insurance sector of all G20 countries in the coming five years (according to Swiss Re).
As a rapidly developing market, India presents new opportunities for reinsurers. Closing the country’s large protection gaps and supporting the growth of new and existing lines will require significant additional capacity, as well as innovation
Cat capacity expands
In contrast to last year’s renewal, 4/1 saw a resurgence in property catastrophe capacity. While there were few new players in the market, existing reinsurers demonstrated an increased appetite to grow their property catastrophe books in India. Despite excess capacity, however, reinsurers remain disciplined.
Broadly, property catastrophe pricing was flat to slightly down, with some adjustments to wordings in response to loss events in 2023.
Tightening of terms
Natural catastrophe losses were a significant issue at 4/1, with floods events over the past twelve months hitting reinsurance treaties. Heavy rainfall in July last year resulted in severe flooding and damage to hydropower plants in India, generating potentially large losses for property insurers.
Following the floods, re/insurers have imposed natural catastrophe limits on hydropower plant risks in India. For some occupancies, reinsurers are requesting cession pattern to shift to a ‘sum insured’ basis from the current ‘probable maximum loss’ model. The move will be a significant change for the property market, albeit incremental and spread over many years.
Closing the protection gap
Despite significant exposure to earthquakes, cyclones and floods, non-life insurance premiums as a percentage of GDP in India are relatively low at around 1 percent, resulting in a sizable protection gap. Between 2015 and 2023, natural disasters in India caused an estimated $49.02 billion in damage, of which just $3.45 billion was insured, according to Aon.
However, the government and the insurance regulator are looking to increase penetration rates. In 2022, the government launched an “insurance for all” initiative, which aims to give every person and company access to insurance by 2047.
Aon is working with insurers and state governments on potential solutions, including parametric insurance products and catastrophe bonds.
Rising demand for specialty and life solutions
Specialty insurance penetration is increasing in India, with growing awareness and demand for cyber insurance, trade credit insurance, directors and officers insurance and surety bonds. India’s cyber insurance market is growing with increased demand for cyber treaty reinsurance, with insurers increasingly opting to purchase separate cyber liability reinsurance, rather than rely on sub-limited cover under their excess of loss liability reinsurance. Post-pandemic, there is also growing demand for life and health reinsurance from foreign reinsurers following a tightening of the domestic market.
Collateral requirements for 2025
India’s insurance regulator (IRDAI) has proposed the introduction of collateral requirements for reinsurance transactions made by Indian insurance companies with Cross Border Reinsurers (CBRs). For highly rated CBRs (A- and above from S&P), the minimum collateral required will be 80 percent of the total liabilities and reserves, while for lower-rated CBRs (below A-), it will be 100 percent.
According to the IRDAI, there were 283 CBRs operating in India last year in competition with the state-owned GIC Re and Foreign Reinsurance Branches (FRBs). While the proposal had little effect on the 4/1 renewal, it will come into play from next year, depending on the final guidelines. The move has met with a mixed response from reinsurers, with some predicting it would increase the cost of doing business.
Burning costs impact
Last year the Indian regulator (IRDAI) wrote to local reinsurers requesting that they exclude the burning costs rate for fire and engineering risks, as published by the Insurance Information Bureau (IIB), in their reinsurance treaties for risks incepting from April 1, 2023. The move, which caused uncertainty at last year’s 4/1 renewal, has turned attention to the profitability of reinsurance treaties. For now, reinsurers are taking a wait and see approach, but are keeping a close watch on the market, as well as individual insurers underwriting performance
IFRS 17 challenge
The Indian insurance industry is preparing to implement the country’s equivalent of the international accounting standard for insurance contracts, IRFS 17. India’s 15 largest insurers will be required to adopt IFRS 17 for the full year 2025. India’s insurance regulator (IRDAI) has created an expert committee to implement the standard, recommending best practices and setting a timetable.
Aon’s Strategy and Technology Group recently held a workshop in India on IFRS 17 and is assisting insurers on the transition to the new accounting standard.
Strong support for agribusiness renewals
India is one of the world’s largest agriculture insurance markets behind the U.S. and China, with many of its state-schemes purchasing reinsurance at 4/1. This year’s renewal, however, saw a smaller renewal than 2023, with around 70 to 75 percent of the premiums placed last year on multi-year deals.
As with 2023,strong growth prospects and sustained good performance ensured that agribusiness renewing this year continued to attract the support of reinsurers.
Despite a reduction in direct premium rates, reinsurance capacity was more than adequate at the April renewal. Stop loss prices were slightly down, while pro-rata commissions reduced. The adoption of a lower volatility structure by more schemes to also led to higher retentions in the market at 4/1.
Source AON