General Insurance Corporation, the state-owned reinsurer, has posted a loss of Rs 2,469 crore in 2011-12, the first in its history, as it had to pay out more due to natural catastrophes in countries such as Japan and Thailand, while yield on investments and inflow of fresh business were hit on account of the global economic slowdown.
2011-12 was a difficult year for reinsurance companies with substantial exposure to Asia, as countries as far apart as Thailand, Japan, New Zealand and Australia were hit by natural calamities such as earthquakes and floods.
Reinsurance refers to insurance bought by insurors from other insurance companies. GIC, the only Indian insurer allowed to provide reinsurance and which made a profit of Rs 1,033 crore in 2010-11 proved no exception to these global trends.
The corporation has increased its exposure to overseas markets in the past few years, a decision that did not prove beneficial during 2011-12 as it reported an underwriting loss – the difference between payouts toinsurance companies and premiums received from them – of Rs 4,971 crore.
This includes a Rs 1,956 crore hit on account of floods in Thailand and Rs 400 crore and Rs 470 crore respectively due to earthquakes in Japan and New Zealand. GIC, also made an additional provision of Rs 811 crore to cover possible losses arising from providing reinsurance for the motor vehicle industry.
“Most of the losses have come because of global programs where we participated,” said A K Roy chairman and managing director GIC. “We are cutting down exposure to such programs. So, for example if Munich Recovering catastrophe in various countries, we have brought down that exposure.” Overall GIC saw claims of Rs 7,672 crore against an income of Rs 5,924 crore from abroad.
Global reinsurance firm Swiss Re has termed 2011 as the costliest year for the reinsurance industry with catastrophic losses exceeding $110 billion, of which 60% is from the Asia Pacific region.
GIC saw its premium income rise 16% to Rs 13,000 crore in 2011-12. The company reported investment income of Rs 2,255 crore, marginally down from Rs 2,339 crore in the previous year. “We have made provision of Rs 2,491 crore. Actual payment of claims will be paid in next few years.
GIC’s solvency ratio is more than 150% despite all this losses. Overseas business contributed 44% to the premium growth. The combined ratio, which is claims and operating expenses as a percentage of premium income, from overseas business was at 191%,” Roy said.
“GIC will grow more slowly at 10% this year. We have taken proactive steps, cut underwriting losses, brought down expense and are looking to improve investment income,” Roy said. It has a reserve of Rs 9,000 crore, which will come down to Rs 7,000 crore because of the provisioning on account of losses.
The corporation has been exiting segments where it has failed to make money over a five year period. GIC, for instance, has stopped providing reinsurance for insurors in the health and credit insurance businesses