Industry sources point out that placement of the KKNNP insurance has to be completed soon as the reinsurance market has shown hardening tendency in view of Russian invasion of Ukraine that has started impacting the reinsurance rates
Mumbai:
With the participation of major global reinsurers, New India Assurance(NIA) will soon complete the placement of property cover for unit three and four of Kudankalam Nuclear Plant(KKNPP),with a sum assured of over Rs 43,000 crore, one of the largest nuclear plant in the country, being set up by state owned Nuclear Power Corporation of India Limited(NPCIL) in Tamil Nadu.
Like aviation insurance, covers for nuclear plants are also purely reinsurance driven, where the primary insurer reinsurers almost over 90 per cent of the high value cover with large sum assured, with more than one global reinsurers.
This is done to ensure that risks are sufficiently diversified and in any case of mishaps, that can trigger large claims, financial compensations are easily mobilized from clutch of large high net worth reinsurers which would not be possible in case of a few reinsurers.
The country’s largest general insurer NIA, which has provided the property covers for the first two units of the plant with the participation of state owned GIC Re, has already won the NPCL mandate for insuring two more units of the KKNPP after a competitive bidding in November 2021.
GIC Re, which has already participated in reinsuring the first two units of the KKNPP, not only in terms of mandatory five per cent obligatory also had taken much larger share which in insurance parlance called as facultative coverage, is currently having discussion with NIA for deciding its share, if any, in other two units.
However, GIC Re has quoted a higher price of Rs 177 crore for its participation in unit three and four, while NIA has managed a lower quote of Rs 160 crore from a set of international reinsurers located outside India.
Going by the existing reinsurance regulations, in order of preference, NIA has to first approach GIC Re which has the first “right of refusal’ for any reinsurance business in India.
After GIC Re refuses fully or partially, NIA, following the order of preference, then can approach foreign reinsurance branches (FRBs) in India, reinsurers who are present in GIFT City(presently only GIC Re) and lastly cross boarder reinsurers who are registered with the insurance regulator (IRDA) to place the total cover.
“Currently, senior officials of both GIC Re and NIA are in discussion about the placement of deal which will mutually benefit them and NPCIL. NIA is committed to comply with all reinsurance regulations and safeguarding the interest of NPICL in terms best reinsurance cost,’’ said a senior official of NIA.
Industry sources point out that placement of the KKNNP insurance has to be completed soon as the reinsurance market has shown hardening tendency in view of Russian invasion of Ukraine that has started impacting the reinsurance rates.
NPCL had mandated NIA among the domestic insurers, which had provided the cheapest bidding in terms of premium, after cancelling the first bidding in 2020.
A nuclear plant has two kinds of covers. One is the property cover while the second one is liability cover. The liability cover for a nuclear plant is always covered by the Indian Nuclear Pool(INP), formed by the domestic general insurers and managed by state owned reinsurer GIC Re.
Source in the NIA said that with the phase one and two of the plant have remained claims free, it has helped NIA to get a cheaper reinsurance quote from international reinsurers.
Though, the ground-breaking ceremony for construction of units three & four was performed on 17 February 2016. due to technology changes, inflation and insistence of the supplier and operator for additional liability insurance, the construction cost of units of these additional units have already amounted to twice the cost of units one and two and currently has almost touched over Rs 43,000 crore.
“Our target is to complete these projects without any further cost overrun ,’’ said sources at NPCI.L