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Bill mum on GIC's global reinsurance role

Freny Patel

The General Insurance Business (Nationalisation) Amendment Bill, which was introduced in the Parliament last week, is silent on the crucial issue of the General Insurance Corporation of India (GIC), designated National Reinsurer, being permitted to operate in the overseas reinsurance market.

The bill introduced in Lok Sabha points out that the government has decided to entrust reinsurance business to the GIC and delink its four subsidiaries carrying on general insurance business from GIC.

The finance minister said while introducing the Bill in the Lok Sabha, "Reinsurance is a business which is very important. This country lets go off millions of dollars worth of business because we have not developed reinsurance capacity in the country." The bill does not identify GIC being permitted to write reinsurance business in the overseas market, said sources.

Senior insurance officials questioned the lack of clarity in defining GIC's new role. "Is it to manage only 20 per cent of the compulsory cession in the local insurance market? Would GIC have the freedom to operate as a true reinsurer?" said officials.

GIC's expansion into the overseas reinsurance market seeds from its expectations of decreasing premiums in the local market. GIC's chairman D Sengupta, said, "Personally, I feel that the total premium will not increase immediately, and it will take one to two years before insurance penetration takes place".

GIC is eyeing offshore markets in Afro-Asian countries, the Middle East and the erstwhile Soviet bloc, including Russia, Poland, and Yugoslavia.

"We feel our hopes lie in getting premium from outside the country," said Sengupta.

Officials stated that if GIC is to be permitted to operate overseas as has been laid out in its future strategy, the National Reinsurer needs "reserves in foreign currency so as to be protected against fluctuations in the rupee."

GIC further needs to improve its Standard & Poor's credit rating to 'A' for it to undertake overseas reinsurance business. It is currently restricted to a rating of "BBB" by virtue of the rating agency not granting a higher rating to companies above the sovereign.

Sengupta had pointed out various possibilities for GIC to enhance its rating to 'A'. The two options he had proposed included putting funds into fixed deposits overseas or using hard currency to buy an overseas company and then apply for a higher rating.

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