“For Sikkim event, loss assessment is underway.  We do not expect it to be a major event based on initial information available,” said Hitesh Joshi, general manger, GIC Re to Asia Insurance Post

“Our hands are tight, We will go by the rule book and the re/insurance contract the Sikkim Urga( the state enterprise that runs the Hydro Power project)  has  signed with re/insurers. The contract clearly says in case the project is damaged by the glacial lake outburst flood(GLOF), the claims will be limited to Rs 500 crore. The company has paid its premium accordingly. We could have paid the entire Rs 12,000 crore, if an earthquake would have destroyed the project,’’ said another official of a reinsurance company

Mumbai/New Delhi:

In a first ever such a  development, the Sikkim government is finding itself in a tight spot as the global reinsurers along with state owned GIC Re have stuck to their stand that going by the contract, they can only pay upto Rs 500 crore of claims for the claim settlement of 1,200 mw Teesta Stage III Hydro power project, with a sum assured of Rs 12,000 crore, as the project was completely washed away by the glacial lake outburst flood(GLOF).

The role of the reinsurers including GIC Re, Swiss Re and Munich Re and others is very important from the claim settlement point of view as the the Teesta Stage III Hydro power project is majorly reinsured where the almost half dozen of primary insurers led by IFFCO TokIo General Insurance just acted as fronting companies for the deal and accordingly majority of the claim settlement amount have to be paid by these reinsurers.

“For Sikkim event, loss assessment is underway.  We do not expect it to be a major event based on initial information available,” said Hitesh Joshi, general manger, GIC Re to Asia Insurance Post.

“Yes , we have been intimated by the primary insurers led by IFFCO TokIo General Insurance about the present state of affair of Teesta Hydro project, following its total destruction, though details of the claims have not been filed with us  yet,’’ said  a senior official of a foreign reinsurance company.

“Our hands are tight, We will go by the rule book and the insurance contract the Sikkim Urga( the state enterprise that runs the Hydro Power project)  has  signed with re/insurers. The contract clearly says in case the project is damaged by (GLOF), the claims will be limited to Rs 500 crore. The company has paid their premium accordingly. We could have paid the entire Rs 12,000 crore, if an earthquake would have destroyed the project,’’ added another official of an another reinsurance company.

The flood that orginated in the South Lhonak Lke in North Sikkim on the night of October 3 submerged the hydropower project and completely washed away the 60 meter high Chungthang dam,

GIC Re has a total exposure of Rs 500 crore for the project and shares the risks with other reinsurers including Swiss Re and Munich Re.

GIC Re also has further reinsured it and in case of claim outgo, its balance sheet is protected.

Observer in the industry point out that it will not be now easy to settle this kind of claim and the entire thing may land up with the regulator IRDAI or in the courts before any claims are settled by the re/insurers.

“One has to remember the fact that it is a government of Sikkim project and built on borrowings from the banks. The Sikkim government will not remain silent on technical reasons. Situation is worth watching and set precedents for the future,” said observers.

“We are ready to handle the situation. Let us see how things are unfolding. You can’t have the cake and eat it too,” said one reinsurance official.

As the project is majorly reinsured, it will be reinsurers and not the primary insurers who will suffer much of losses.