Swiss Re has completed more than one year of direct operations in Indian market. How do you see the Indian market?
The reason that we have established direct operations in India is because we wanted to be on the ground, to better understand and cater to the needs of our clients. We do see a lot of growth opportunities in India and the current market is very competitive. At the same time, the Indian market is evolving and there are some regulatory changes being put in place, particularly for the reinsurance sector, which we respect and are studying to see how it is going to work going forward. We have been engaging the regulators them through different channels and providing feedback, as part of our continuous efforts to build good working relationships with regulators, clients and partners in India.
How much and what kind of businesses you do?
We have been growing our business in India before setting up in Mumbai, operating as an offshore entity. The establishment of direct operations enables us to deepen our presence in the market for further growth.Our Property & Casualty (P&C) line of business, which includes property, liability, as well as agriculture, is still growing at just under 10 per cent.
As a reinsurer, our top priority is to ensure long-term sustainability in the market. While the top line is important, profitability is equally so. Given the competitive market dynamics, we focus on getting the right price, right terms and achieving economies of scale that will grow our business in the long-term. It is about how do we invest in India, contribute to building up a platform to engage with our clients, and supporting governments, insurance companies and consumers to close the protection gap. We work with both private and public sector insurers in our business. At the end of the day, it goes back to our global vision, to help make the world more resilient.
What are the businesses you do?
Our P&C business encompasses agriculture, property engineering, marine and motor, and it's a line of business that we hope to achieve more growth in. India is vulnerable to certain natural catastrophes which impact on property and agriculture, for which most people would need to buy reinsurance. Our liability line of business is also growing, and it will take time to gain larger scale. There is still a need for people to learn about liability risks – what are the exposures, how it works, and how can one claim for such risks.
We pay close attention to our clients' needs and will grow our business as much as the primary insurers need to grow. It is a question about capital – the more business you write, the more you need to put in capital and manage solvency. Some of the solutions that we design address that by helping insurance companies to manage their solvency and provide volatility protection.
Besides the P&C line of business, Life & Health constitutes about a quarter of our business at the moment, in which we tend to focus more on health issues such as critical illness, dementia and diabetes.
April is the largest renewals in the Indian market.Did you manage to grow your book at Apr renewals?
Yes. As I've mentioned, we grew our P&C business at about just under 10 per cent.
For reinsurance, pricing very much depends on the availability of capital in the market. At the time of the January renewals, pricing has increased worldwide. In comparison, there remains much available capital in the market during the April renewal period. Taking that into account, price increases were more subtle than we have seen during the January renewal period. We saw some price improvements in the agriculture portfolio, while other sectors such as liability and engineering have remained relatively stable.
I think India remains a popular and exciting market, where many see it as a future growth engine, and we are deploying more capacity to the market.
Portfolios like motor, health and agri,are faster growing portfoliosfor the general insurers in India. Are they the same for the reinsurers?
Yes, some portfolios such as motor lines are increasing. However, we take a slightly different approach as most of the insurance companiesthat buy reinsurance programsare looking more at earnings volatility.
It seems, you have provided a lot of capacity for the Indian agriculture insurance?I think you are the largest reinsurer after GIC Re?
Yes, GIC Re takes on a larger size of the business line. We do write a lot of agriculture business and it contributes to about 40% of our business in India. We are encouraged by the portfolio despite it being a new set-up to address the protection gap. Since the government created the new subsidy scheme, the business line has quadrupled in size. That said, we are still learning about that business in terms of how to grow it further. Right now, we're managing it quite well.
In '16-'17, it was a profitable portfolio for everybody from the primary insurance point of view.What about you?
Last year was profitable for us, partly due to the absence of drought and extreme events. The years before were not so fortunate. An important thing to remember is that agriculture is not a business line where you can just look at one year's performance. You need to look at claims and business management, because it impacts a very large area when claims occur.
One should also always be aware that there is a difference in assessing the performance of a primary insurer and that of a reinsurer. There may be occasions where reinsurers perform better than primary insurers, depending on the conditions that are attached to the programs that reinsurers provide to primary insurers.
Have you made money in agriculture portfolio in 2017-18?
We continue to grow that line of business as pricing has become more stable, and we are working on improving claims management processes.
Over the last four years, we have also gained much knowledge about who are the better underwriters in the market, and we can put more focus on developing differential underwriting with different insurance companies.
This is a long-term business that has vast potential in which we can work to close the protection gap for farmers and the government, and we are contributing our learning and knowledge to the industry through the way we grow our business. It's a regular discussion that we will have with our underwriters and closely linked to the amount of capacity that we want to deploy to the Indian market for agriculture.
In agriculture, you also give retro capacity to the GIC Re?
Yes, we participate in GIC Re's annual underwriting programme, which gets reviewed every year. We are the largest in this segment and will continue our efforts to see how we can better support GIC Re.
Any other lines of business, you find interesting in Indian market?
At Swiss Re, we believe that there are many ways we can operate to help address or close the protection gap in India. For instance, infrastructure is a pillar that we will be focusing on, as there are many opportunities in engineering and construction that require capacity in India.
The motor lines are always interesting and it's the biggest line of business in India. It is a little challenging as the segment is driven by a lot of competition. As a reinsurer, I believe we can provide knowledge to how insurers can price it and help different companies steer the market.
Indian government has launched a mass high value health insurance schemesNational Health Insurance Protection Scheme (NHPS)for 500 million people who are at the bottom of pyramid. Would you be interested in this business?
Yes, we do have an interest and we will be studying the initiative closely.
How do see this mega health plan where a large no of people will get $7-7500 health cover free?
There will be a need for the government to provide subsidies and determine how to price it. A key consideration would be how the risks can be transferred to the insurance industry. We can help insurers design programmes for this initiative, and as more players participate in it, there will be more margins. While good claims and cost management can help insurers to make some margins, it will take a multi-year strategy for players interested in this line of business to achieve sustained business growth.
Is it necessary that from the first year itself they one has to be profitable? Like agri-insurance, it can be bad or good sometime.
Healthinsurance tends to be more stable, quite unlike agriculture – the latter's potential exposure to sudden extreme events like natural catastrophes increases its volatility. If you look at the claims pattern of people at different age groups in health insurance, they tend to be more stable in general in India.
Health insurance business is more about managing it properly and involving the right partners such as hospitals and medical clinics. There is a strong demand for such products, especially when better economic growth enables people to have greater income and capacity to purchase medical and health covers for themselves.
In Asian markets where does India market fit in? Who is your no 1 market, China or Japan?
They are all important for us. Asia, as a whole, is a growth market. Although many people talkabout China, India is also growing. Philippines is growing quite rapidly as well. To us, both China and India are high growth markets, and to some extent, so are Vietnam and the Philippines. This is because we take a holistic view of the economic conditions in these markets, how developments are progressing and we see a strong correlation between GDP growth and the insurance needs.
Will you grow your other manpower and experts in India?
We've been growing our manpower in India. At the moment, we have about 50 professionals in Mumbai and our operations in Bangalore have about 1000 professionals. Our Bangalore team supports our business globally, performing functions such as modelling and underwriting for all our operations around the world.
What you are doing for Climate Change?
We see a huge protection gap in the natural catastrophe segment. In 2017, 57% of total catastrophe losses (USD193 billion) worldwide were uninsured. In Asia, the gap is even more apparent, as 84% of total catastrophe losses (USD 26 billion) in 2017 were uninsured.
How we can help to close the protection gap depends on the lines of business that our clients intend to grow and their needs. There are different levels of solutions or covers. The traditional forms are based on true indemnity, where you insure up to a certain level and when a natural catastropheevent happens,loss figures will be determined and claims amounts will be paid, be it for commercial properties or other asset types. Typically, the process will take around three to six months, depending on the severity of the impact andcomplexity of the claims.
Besides traditional solutions, we also work with governments on public access programs to help them to close the protection gaps.
We can see that there are some discussions along these lines in the Philippines at the moment, because of the country's exposure to natural catastrophes such as tropical windstorms or typhoons, and there is a high demand to close the large protection gap in this segment.
The key lies in creating more efficient solutions for the communities, for government as well as for the end consumer. One of the initiatives that we have currently is what we call our parametric solutions.
Basically it's an index-linked insurance that provides defined levels of claims payment, depending on the severity of the events. It provides an efficient claims payment process and helps to get people's lives back to normal quickly, depending on the severity of the events.
In addition, we also have a very experienced modeling team which is working on refining risk modeling for events such as typhoon, hurricanes, floods, and earthquakes.
So, what are the sectors in P&C or life that would be impacted by the climate change?
With climate change, the sea level is rising and flood risks will be on the rise. Climate change also affects agriculture and the possibilities of drought will increase due to the change of weather patterns. It is increasingly more challenging to predict the seasons in terms of the temperature.So, you have hot days where the temperature is very warm and it suddenly becomes very cold.In general, climate change effects impact on many different aspect of normal life and economic activities, if you look at the entire value chain.
So, have the climate change risks now being actively factored into insurance or reinsurance business?
Climate change is a complex issue and it will take time to understand more about related risks. For a reinsurer, climate change has a meaningful impact on our business because it can lead to an increase in the frequency and severity of typhoons, cyclones, drought, floods and storms.
We have followed the development of climate change for more than 20 years and participated in, or sponsored, hundreds of events and projects ranging from research and awareness building to product development and managing our own carbon footprint. Putting in place innovative, customised and sustainable practices now will ensure future resilience and we are committed to lead by example and show what is possible.
Our first priority is to help people get their lives back to normal following a natural catastrophe. Parametric solutions like the one I have mentioned above is an example of how we support our clients and government partners to be more resilient into the future. We are also constantly building up our modeling capabilities, deepening our understanding of the impact of climate change, the different types of risks arising from natural catastrophes.
Is Swiss Re doing anything on any products relating Climate Risks?
We have rolled out several parametric products, quite of number of which are in Asia, in partnership with our clients and government partners. For such solutions to work, accessibility to data is essential to price solutions appropriately.
In India, we are in discussions with the government, gradually building up the awareness and understanding of these solutions in the market. There are some differences to be taken into consideration, as governments run on a fixed budget and much of it will depend on how much they want to invest in insurance, the amount of assets they want to protect and the extent of potential downside that they want to insulate from natural catastrophe events.
It will be an ongoing process and we remain committed to work closely with the government to develop solutions that can support their needs.