Reinsurers have been surprised with the price drop on risk which has been more than expectations, mainly due to previous years good results and interest in the Indian risks. With uncertainty in the Gulf, the interest on Indian risks is also higher. Overall many reinsurers feel the market may not earn enough at these levels to service their capital and any large loss can create pricing volatility in future.
Mumbai:Battling a severe global soft pricing cycle, Indian reinsurers have turned cautious and innovative to protect their bottomlines, while deploying their larger capacity, in the Apr1 renewals of Rs 3 lakh crore(USD32billion) Indian general insurance market.
Apr1 Renewals have been a buyers’ market for cedents with ample capacity provided by 36 reinsurance players located inside India and around 270 cross boarder reinsurers (CBRs) operating from overseas markets, said industry sources.
Reinsurers across have been surprised with the price drop on risk which has been more than expectations, mainly due to previous years good results and interest in the Indian risks. With uncertainty in the Gulf, the interest on Indian risks is also higher. The pricing is going onto a narrow path between sustainability over long term vs short term market share preservation, explain market sources.
Overall many reinsurers feel the market may not earn enough at these levels to service their capital and any large loss can create pricing volatility in future, sources said.
However, Hitesh Joshi(in pic), acting CMD, GIC Re, the largest player in the Indian reinsurance market, is more guarded in his stand.
`The reinsurance market is becoming more nuanced. It is becoming more sophisticated. It is evolving. Though this market is getting characterized as a soft market, every soft cycle phase is also different. Though there are similarities, there are also differences. There is more nuanced approach in terms of assessing a particular cedent’s operating performance,’’ said Joshi
For the first time, Indian reinsurance market has so many players competing to secure their pie in Rs 1 lakh crore Indian reinsurance market, growing at 10-12 per cent.
Apart from GIC Re, Indian market has two private sector reinsurers-one year old Valueattics and newly set up Allianz Jio Reinsurance, 13 foreign reinsurance branches(FRBs) set up by global reinsurers giants like Munich Re, Swiss Re , SCOR Lloyd’s of London and 20 new IFSC Insurance Offices(transacting in US dollars) operating from GIFT –IFSC , the country’s sole international financial services centre besides around 280 cross boarder reinsurers(CBRS) located overseas.
“ Market outcomes at recent renewals have become increasingly influenced by individual portfolio performance rather than broad cyclical momentum. While competitive pressures are incrementally returning, pricing remains broadly rational, where risk-adjusted returns are appropriately compensated. The prevailing focus across the sector is, therefore, on margin protection rather than volume-led expansion, ‘’ elaborated Joshi.
“We will have more freedom in how we write. Our capital deployment will be free. And particularly, those companies which are playing close to their targeted solvency range, they will definitely need a substitute reinsurance requirement immediately,’’ averred Joshi.
“On the back of disciplined underwriting, consistent execution, and our strategic approach, we hope and believe that we will continue to achieve the guidance we are giving and continue to perform to the satisfaction of our stakeholders, stressed Joshi who is determined to bring down GIC Re’s combined ratio(currently at over 105 per cent) by 1per cent every year.
“We will use the reinsurance handles that are available to us to ensure that we do that tightrope walking of protecting our balance sheet at the same time supporting the insurance companies,’ said GIC Re officials.
Sven Althoff(in pic), Member of the Executive Board.Hannove Re, one of the top five global reinsurers operating as one of the FRBs in india said,“ Though prices have softened overall. we will have a client specific approach for the Indian market.Clients with good ratings will be offered better pricing. For us India remains a growth oriented market.”
“The Indian market is witnessing significant price driven competition in Health, Motor and Crop segment.Property premiums were witnessing a similar trend last year but have since stabilised. It is all a part of the underwriting cycle.”Girija Subramanian(in pic), CMD, New India Assurance.
Considering the sheer increase in the number of natural disasters in the year even though most of them were small there could be some impact on the reinsurance pricing in the property segment in the upcoming renewal,especially for the lower layers,” added Subramanian.
“Our retention levels in FY 2024–25 at an enterprise level has remained strong, consistent with our capacity and financial strength. The approach is to balance risk appetite, capital efficiency, and profitability.However, we will seek reinsurance support in the emerging lines like cyber, surety, parametric etc,” stated Subramanian.
In the small property segment, there is heavy competition among insurers . And as a result, it is putting pressures on the pricing. On large risk, the impact on pricing is also seen because there is competition. Wherever it is reinsurance-driven, there is competition among reinsurers, but there are certain segments which are holding fairly well.For example, refineries or energy segment, where although the pricing is under pressure, it is not as much as in other segments within the property, highlighted GIC Re officials.
Some market players point out that reinsurers are reducing their exposures for Property and increasingly focussing on Liability products including Surety Bonds,that have seen demands as more highways are built in the country.
Sudhir Salian(in pic), Managing Director, Head of India at Peak Re, which underwrites the largest premium among GIFT City located IIOs,said, “We are selectively supporting growth where we see sustainable, profitable long-term partnerships. Our underwriting approach remains consistent—disciplined and client relationship led, based on long-term client relationships and a good understanding of the underwriter’s ability and individual risks.”
“We continue to focus in India and are not looking to alter our plans.India remains a core, long-term market for Peak Re. Through our GIFT IFSC branch, we are able to engage even more effectively with Indian clients, and we continue to provide meaningful capacity on well-structured risks.The GIFT presence is already delivering real value in terms of responsiveness and local market insight,” stated Salian.
“On the current volatility of the Indian rupee rates vis-a-vis the US Dollar, we view currency risk over a slightly longer timescale as the treaty operations progress and therefore actively manage currency exposures as part of our normal risk framework. While worrisome, we don’t view the recent Rupee depreciation materially impacting our India strategy at this stage. We continue to monitor the situation. The GIFT IFSC structure also gives us a good platform to manage this risk and additional flexibility in how we support our clients,” outlined Salian.
Overall, Peak Re excited and remain positive about the momentum in the Indian reinsurance market and the role the GIFT IFSC ecosystem continues to play in its development, said Salian.
In key Asia Pacific markets – including Japan, Korea and India – reinsurance buyers secured double‑digit rate reductions, supported by plentiful capacity and a period of relatively benign catastrophe losses, said Aon, a global re/insurance broker.
With an influx of new insurers, mergers and acquisitions in the insurance sector, and an increase in foreign reinsurers establishing a presence in India, market capacity is increasing, added Aon.
Life Reinsurance
Sajja Praveen Chowdary, Director & Head at Policybazaar for Business, the Institutional and Reinsurance Business of PB, said reinsurance capacity for term insurance in India has been constrained over the past few years, largely as an aftermath of COVID-19, during which both insurers and reinsurers absorbed significant losses. In response, direct insurers strengthened their risk controls and increased retention – reinsuring less and holding more risk on their own books.
Encouragingly, capacity now appears to be returning as experience stabilizes. Recent market discussions indicate that a combination of new entrants and existing reinsurers looking to re-enter the term insurance space could put downward pressure on reinsurance rates. The extent of any rate reduction is likely to vary by Sum Assured band, he noted.
“Since reinsurance rates are a key input into the final pricing of term products, some pass-through to customer premiums is possible. However, any reduction in customer premiums is unlikely to be proportional – reinsurance is just one of several components that determine the final price. Also it is also worth noting that term insurance premiums are typically locked in for the life of the policy, so existing policyholders coming up for renewal should not expect a change in their rates, ” explained Chowdary.