“We are closely monitoring the evolving market dynamics and are taking all steps necessary to protect GIC Re’s interests. These measures would include enhanced risk assessment, collaboration with insurers and also prudent capacity allocation.’’ N Ramaswamy, CMD, GIC Re

Mumbai: In a bid to check the ongoing cut- throat competition leading to rampant undercutting of the Fire premium among the general insurers, GIC Re, India’s largest reinsurer, has enforced a new set of underwriting guidelines including pricing since Jan 1.

State owned reinsurer has asked the local general insurers (Cedents) to strictly adhere to the new guidelines, if they want GIC Re’s capacity, for any Fire policies with a sum insured above Rs 5 crore.

The new guidelines and pricing, valid from 1st, Apr 2024 to 31st Mar, 2025, will be applicable to all policies and risks underwritten on lead, co-insurance and or reinsurance inward basis and has to be dealt as part of GIC Re’s “Whole Account Excess of Loss Treaty Contract , 2024,” said the reinsurer that has a market share of over 60 per cent in Rs 1 lakh crore Indian reinsurance market.

The new norms will exclude BSUS and BGR products.

GIC Re, which is expecting lower topline growth in Fire portfolio due to large discounting of premium by Indian general insurers in recent months, has clarified that the insurers can offer lower rates than what is listed in its new guidelines but it will not reinsure such policies as part of its Treaty Contract.

Earlier, N Ramaswamy, CMD, GIC Re, had expressed concern over the market indiscipline and had cautioned that GIC Re would withdraw capacity unless it gets the right pricing.

“We had observed significant rate cuts in the market especially for medium to larger size risks. This is partly driven by a softening rating environment in the international market for industrial risks, but the main contributor is a high domestic capacity. This is indeed concerning,” he said.

“We are closely monitoring the evolving market dynamics and are taking all steps necessary to protect GIC Re’s interests. These measures would include enhanced risk assessment, collaboration with insurers and also prudent capacity allocation.’’ he added.

“Of late, we have seen much improvement in the market  conditions on discounts which had prevailed during the last couple of months. I hope it will further improve by Apr 1 when majority of Indian business come for renewals,’’ he said.

GIC Re is committed to promoting sustainable and disciplined underwriting practices. It is continuously engaging with direct insurers to achieve pricing and terms that reflect the underlying risk, stated Ramaswamy.

According to analysts, the general insurers and other reinsurers including Foreign Reinsurance Branches(FRBs) will have to go by GIC Re’s new underwriting norms and pricing as it has the right to first refusal which effectively allows it to set the pricing and terms and conditions of any policies in Rs 1 trillion Indian reinsurance market.

The new guidelines by GIC Re will also benefit the general insurance industry and other reinsurers as it will help them earning higher premium by reducing the discounts, which are mostly offered to match unhealthy competitive rates, for their customers, said the analysts.

“We are happy about the new underwriting and pricing norms of GIC Re. Let us see how it is getting implemented in the forthcoming Apr 1 renewals. There are always market forces that disrupt a healthy trend in the last moment,” said CEO of a Foreign Reinsurance Branch(FRB) in India.

“The new GIC Re fiat will now force general insurers to stop indulging in any large discounts to their customers which is not acceptable to GIC Re.” said analysts.

With heavy undercutting of premium, in November, the total fire premium in the Indian general insurance industry had fallen by 5 per cent to Rs 17,226 crore. Large general insurers including four PSU general  insurers, New India Assurance, United India Insurance, National Insurance Company, Oriental Insurance, and ICICI Lombard general insurance, had seen their Fire premium shrinking in a big way since Oct.

Except Fire portfolio, rest of the segments in the Indian general insurance industry are recording robust premium growth in recent times.

“There has been a some kind of bloodbath in the Indian general insurance market as far as discounting of Fire premium is concerned. We have no options but to join the undercutting spree,” said a senior official of New India Assurance.

“As a market leader, our goal is to ensure that the Indian market remains robust and resilient, while also safeguarding our financial stability and profitability.” Ramaswamy said.

However, analysts have pointed out larger anomalies in the ways Indian general insurers do their mathematics pricing.

According to them, exposure based pricing has been missing for quite sometime in the underwriting approach of the Indian general re/insurers. This has led to direct underwriters becoming very optimistic about pricing based purely on burn costs and has triggered irrational exuberance including discounting Natcat pricing .

“In the long run, this will not be sustainable. Reinsurance clients must get into a actuarial pricing base including Natcat and actuarial pricing to avoid volatility for the direct customer and articulate price of risk to the customer eventually,” explained analysts.

At this point, market hasn’t had a significant market changing loss which would make prices even more volatile hence such steps are pointing in the right direction for the overall market stability but the market needs to move further beyond this .

The exposures in the Indian markets are changing rapidly . For example,“Indian market has billions of dollars exposure in solar and wind risks and market hasn’t asked the question if the pricing on this is correct or adequate currently,” cautioned analysts.