Germany based Hannover Re, is the third-largest global reinsurance group, with a gross premium of around €24 billion. It has set up its India branch office in Mumbai three years back and has ambitious plans for India as part of its long term Asian growth strategies.
In an exclusive interview with Asia Insurance Post, GLN Sarma, Chief Executive Officer, Hannover Re, India Branch, outlines reinsurer’s expansion plans in India and Asia.
How do you see the growth and developments in the Indian re/insurance market?
Till 31 March 2020, the overall reinsurance market had grown steadily at a double digit growth (~13-17% per annum). Covid-19 has accelerated digitization of insurance operations and the market has seen a steep demand in protection including health products. With a lot of room left for insurance penetration, there is huge potential still left in the market.
Overall, the non-life reinsurance market in India in the financial year 2020-21 had experienced a reverse trend due to a drop in agriculture insurance/reinsurance premium. However, Foreign Reinsurance Branches (FRBs) still managed to maintain consistent 15%-17% year on year growth.
The Covid-19-effect on the non-life reinsurance market is minimal and we expect to grow steadily from 2021 -22 onwards. Covid-19 has a significant impact on the life reinsurance market. However, we expect the life reinsurance market to stabilise based on the latest experience.
What are major segments you have focused? What have been your top five portfolios in the Indian market? What are portfolios that have profitable for you in India?
The majority of our business currently comes from traditional lines of business like fire, engineering and liability with equal contribution from the agriculture segment. Other than these, we offer structured reinsurance solutions programs that also contribute significantly to our portfolio.
In line with our Group strategy to develop the Asia-Pacific Region, we have initiated in 2020 development of personal line reinsurance business in India. Despite the current Covid-19 challenge, we are very much in line with our business plan target.
Are you also writing Crop in India? What is your experience in this portfolio? What are high-tech tolls you are employing for doing crop insurance?
Crop reinsurance contributes majorly to our portfolio – both on top line and bottom line. Our performance in the agricultural reinsurance segment is in line with the overall Indian market performance and as per our internal expectation. In general, the market and our performance is well aligned with the spatial and temporal distribution of monsoon. We will continue to focus on agriculture business as a major segment.
How is your Indian micro-insurance portfolio doing?
Non-life reinsurance (Including health and agriculture): Hannover Re is supporting the Indian insurance market for agriculture insurance.
We support treaties for traditional personal accident, vector borne diseases and critical illness products, which may have exposure to the rural market through various micro insurance products.
Life Reinsurance: We don’t have any exposure to micro insurance schemes as of date.
What are the innovative products /deals you have launched/done in Indian market?
We introduced a multi payment critical illness product and vector borne fixed benefit plan. We worked on a wellness-based critical illness product and this will be launched soon in the market with one of the growing private life insurance companies in India.
We are supporting a pocket sized critical illness product on a group platform, which will be sold through online wallet sites; roll out is in final stages.
We have also introduced title insurance in the Indian market.
What is your Covid 19 pandemic experience in Indian and Asian markets? Have you paid large Covid claims in Indian or Asian markets?
Life Reinsurance: The quantum of death claims paid out in India is relatively small and are in line with the actuarial estimations.
Non-Life Reinsurance: From Indian market perspective, major impact of Covid-19 losses is seen on the Health segment, which is significantly retained by the primary insurers.
On the commercial lines – property and casualty segments, we have not seen any loss notifications. Overall, minimal effect to the Indian reinsurance performance despite a drop in personal line premium achievement vis–a–vis original estimates.
What kind of Cyber related covers you have provided and claims you have settled in Indian market and Asian market?
Cyber exposure is a concern, with increasing incidents seen on the larger establishments recently. Pricing is also not commensurate with the exposure at hand, however we have seen marginal pricing improvement in recent times. Primary insurers already have in place strong insurance products, which we do support through treaty and facultative arrangements.
How was Apr 1 2021 renewals for you in India ? Have the prices gone up and so also your top line? What are segments you have expanded?
April 2021 has been a strong renewal for Hannover Re on both property and casualty line of business, with the underlying rate increase observed in the property segment has improved the overall performance of proportional treaties to an acceptable level, which suffered from unsustainable performance due to heavily discounted pricing in the past.
For 2021, we expect the pricing to maintain. In the non-proportional segment, pricing is soft and challenging especially noting the increased number of large risk loss / catastrophic events in recent years.
What kind of Life Reinsurance business you have done in India? Have pricing of some life reinsurance products gone up?
Life Reinsurance: We are currently writing group term insurance, group credit life insurance, individual savings life insurance, critical illness insurance on Individual as well as group platforms.
We believe pricing should reflect the underlying business experience. With worsening of experience in certain blocks of businesses, prices have been increased for those businesses reflecting that underlying experience.
How do you see current reinsurance regulatory regime in India and any changes you want?
Life Reinsurance: Solvency framework for FRBs/Reinsurer is same as that applies to direct life insurance companies, which at times is not relevant to FRBs/reinsurer’s nature of business. FRBs made representations on the above matters as part of ‘ease of doing business’ framework and we are hopeful of required changes at the earliest.
Major issue FRBs/reinsurer writing life reinsurance business are facing is with solvency capital norms. With current norms, for every Rs. 100 premium collected, a life reinsurer is setting out capital of Rs. 220 to 250; which is quite onerous, in our view.
As FRBs are part of parent company, which is regulated by the parent country regulator, we would like to have the same solvency regime as that of our parent company (Solvency II) to be made applicable in India. Alternatively, a risk-based capital regime could be introduced at the earliest to address this solvency concerns.
Fraud in the life insurance space is a serious concern. We would like all the stakeholders to recognise this risk and make appropriate changes in the legislative framework. Insurance pricing is directly relating to underlying portfolio performance.
Appropriate controls would help the genuine policyholders not getting penalised with higher premiums due to frauds in the portfolio.
Non-Life Reinsurance: Solvency and reserving framework for Foreign Reinsurance Branches (FRBs)/Reinsurer/ General Insurer follows the IRDAI (assets, liabilities, and solvency margin of general insurance business) regulations, 2016. This regulation is not risk-based and therefore is not the most efficient method of utilisation of capital or risk measurement.
A move to risk-based capital or alignment with the global Solvency-II-framework would increase transparency and align the insurance industry in India with global best practices
Taxation: For tax purposes, foreign reinsurance branches are treated as “non-residents”, requiring them to pay a corporate tax of 40% plus surcharge/education cess. This high tax rate has to be reflected in the reinsurance premiums charged, making FRBs less competitive than local players who enjoy an effective tax rate of only 22% plus surcharge/education cess.
The large difference in effective tax cannot be compensated for by FRBs and so heavily constrains the viability of the business.
Order of preference/Offer of participation in Non-Life Reinsurance:
The reinsurance regulations 2018, which came into force on 1 January 2019, amended the way in which the order of preference is applied to local cedants when placing reinsurance business.
While the new approach gives more business opportunities to international reinsurers, it still limits their ability to compete on equal terms with national reinsurers.
The regulations now envisage a two-step procedure for reinsurance placements, from which life (re)insurers, however, are exempt:
1.Obtaining the best terms for cessions:
Indian and foreign reinsurers can offer their terms to cedants on an equal basis. An offer of participation taking into account the order of preference:
Every cedant must offer the best terms obtained first to Indian reinsurers (currently only General Insurance Corporation of India (GIC Re)) and then to foreign ones. Consequently, Indian branches of foreign reinsurers (FRBs) are placed second in order of preference, while cross-border reinsurers are fourth.
These placement rules create an unequal playing field and over time should be removed.
Financial Reporting: We would like the current financial reporting to be moved into IFRS17 or equivalent to bring consistency with global standards.
How much Asia contributes to your global business? What are the major countries you focus in the Asian region? What are your plans for Asian markets?
In 2020, Hannover Re wrote a total of around EUR 5.5 billion in gross premiums in the APAC region. This makes up about 17% of the gross premiums written by the group as a whole.
The emergence of Asia as an important player in the world economy, driven by changes in its demography and economies, is creating opportunities in the insurance and reinsurance market.
One of the Group’s four Strategic Initiatives is the Asia-Pacific Growth Initiative in which we are engaged in growing Hannover Re’s market share in the APAC region by reducing the protection gap in countries with low insurance penetration, creating business opportunities related to the demographic development and taking advantage of the digital transformation in the region.
On the P&C side, the strategy is focused on becoming a more client-centric insurer hence we are focusing on investing in the infrastructure at our existing locations in the APAC region to bring the underwriting services closer to our clients. This includes our offices in Mumbai, Kuala Lumpur, Sydney, and Shanghai.
How you are promoting or making use of insurtechs in your operations?
We are working with few global partners in bringing the innovative processes in the insurance space in India. Our hr|equarium platform (https://equarium.hannover-re.com/) brings together insurtechs and digital innovators with insurance companies ready to shape the future of our industry.
We are also engaging continuously with new technology start-ups providing services and solutions for extended-warranty, telematics, cyber and health insurance.