With today’s alarming recurrence of accidents, disasters and catastrophes, individuals and businesses seek insurance cover to receive financial protection from insurance companies which are constantly fishing for new insurance strategies to safeguard their financial interests. With the increased burden, insurance companies look for ways to mitigate the risks involved, and rescuing them from the crisis are reinsurance companies.
Reinsurance business is expected to gain momentum in India with the passing of the Insurance Laws (Amendment) Bill, 2008, which is still being reviewed in the parliament. India, which now has only one reinsurance company, the state-owned General Insurance Corporation of India (GIC Re), will widen its arena to foreign reinsurance companies opening branches in India with the bill being implemented.
GIC Re experienced a huge loss of ₹24.69 billion (US$405 million) in 2011-12 due to natural catastrophes, which may serve as a warning to foreign investors and reinsurers looking forward to investing in India’s capital market. The insurance industry worldwide experienced a heavy loss of US$108 billion resulting from natural and man-made disasters in 2011, up from US$48 billion in 2010.
Asia being designated as a high-risk zone has seen a rise in rates when companies renewed their insurance policies. However, reinsurance business in India attracts many outside reinsurance companies, which are waiting for the opening up of the Indian reinsurance market. GIC Re and Hannover Re have had a cooperation agreement for development of life reinsurance business in India since 2008 and have been awaiting the implementation of the bill, while Swiss Re has established a commercial relations office since Indian laws do not allow foreign reinsurance companies to open branches in India. Lloyd’s, intending to open a franchise in India, is proposed to be covered under the definition of a “foreign company” in the amendment bill.
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Priyanka Khimani is an associate at Mulla & Mulla & Craigie Blunt & Caroe in Mumbai.
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