Shirish Nadkarni interviews General Insurance Corporation's chairman, P C Ghosh

One fact, more than any other, has been able to establish that India's state-owned General Insurance Corporation (GIC) - designated national reinsurer in August 2001, following the denationalisation of the Indian insurance industry - has been accepted as one of the giants in the field of reinsurance in Asia. In the company of a few select Asian reinsurers, GIC is currently devising an all-new rating system of insurance securities.

And the Asian region rating system will reduce dependence on global rating organisations like Standard & Poor's (S&P) and A M Best for the placement of reinsurance business, at least among Asian nations.

A core committee from 12 Asian reinsurers, mainly from India, Japan, China, Malaysia and Indonesia, was formed in August this year to work on the rating methodology. Indian rating agency CARE has been entrusted with the task of working out an acceptable formula.

"The entire objective is to work on a pan-Asian platform, and to have an indigenous rating system which will be independent of the understanding of global rating companies," said P C Ghosh, GIC's chairman. "A lot of times, the perceptions of these international rating firms are subjective and less positive towards Asian reinsurance companies. Much of the rating has to do with apprehensions relating to factors of financial strength and retention capacity of the reinsurer - which are often erroneously linked to the respective country's sovereign rating."

GIC's unhappiness with international agency ratings came to the boil when S&P refused to deviate from its practice of rating the corporation's financial strength on the basis of India's sovereign rating. This made GIC's case before an international audience substantially weak. The other major global rating agency, A M Best, had assigned the Indian reinsurer an 'A' (excellent) rating, similar to the top-of-the-line 'AAA' rating assigned by CARE. But S&P ratings were more widely followed; which did not help GIC's cause at all. "The problem became particularly acute after the 9/11 terrorist strikes on the US three years ago," said Mr Ghosh.

"Thereafter, most international companies applied limits on the business placed in the Asian region, a fact that has worked to our detriment."

Once it is in place, the independent rating system will enable Asian reinsurers to underwrite larger capacities. For example, although GIC at present undoubtedly has the capacity to retain much higher reinsurance risks, it cannot do so. The new rating is expected to considerably help business exchange between Asian reinsurers.

GIC also made a confident statement at the XIVth Insurance Congress of Developing Countries (ICDC-2004), held under the aegis of the Association of Insurers and Reinsurers of Developing Countries (AIRDC) in New Delhi, in March this year. ICDC-2004 provided a platform for fruitful interaction and networking for all Indian insurance players, both private and state-run, with insurers and reinsurers from developed countries as well as the developing world. And GIC aided the proceedings from the wings, showing the world its changing face.

Since the opening up of the Indian insurance market in August 2001, the sector has been growing phenomenally, with new products evolving at a rapid rate. Today, 14 non-life and 13 life insurance companies vie with one another to make an impression on the Indian public.

In addition to the organic potential of the insurance industry, global influences have made their presence felt; these influences have helped fine-tune products and processes. As national reinsurer, GIC found its profile and scope of activities undergoing a sea-change. Among the first steps taken in re-defining its role was a forced abdication of control over its four former subsidiaries - New India Assurance, Oriental Insurance, United India Insurance and National Insurance - each of whose headquarters are in different metropolitan cities in the country for greater ease of administration.

Improved results

The corporation was asked to concentrate on its core activity of procuring reinsurance business from both the domestic and international markets.

The rule of compulsory cession of 20% by all domestic insurers continued, but the remaining 80% was up for grabs, with several major international players eyeing the cake. Despite this, the average annual growth in GIC's business at both local and global level has been impressive over the last three years.

Premium income for the year ended 31 March 2004, was Rs41.63bn ($900m), an 8.6% increase over the income of Rs38.33bn earned in the previous year.

The respective figures for net earned premium were Rs39.92bn and Rs31.86bn, respectively. The pre-tax profit zoomed from Rs3.43bn in 2002-03 to Rs12.77bn in 2003-04, while post-tax profit increased from Rs2.61bn to Rs10.38bn.

These were massive increases; and happened because claims as a percentage of net earned premium had come down from 86.1% to 72.5%.

In terms of assets, the corporation recorded a figure of Rs164.4bn, a sharp increase on Rs117bn for the year ended 31 March 2003. Net worth improved by an impressive 30.5%, from Rs31.68bn to Rs41.33bn in 2003-04.

As a 'financial institution' under Section 3A of the Indian Companies Act 1956, GIC has built up a healthy investment portfolio that is in line with the regulations framed by the Insurance Regulatory and Development Authority (IRDA). Investment income in 2003-04 was Rs8.19bn, up from Rs7.44bn in the previous year. "We have achieved these figures in spite of the many ups and downs in the reinsurance market over the past three years," said Mr Ghosh. "We have continuously maintained our 'A' rating by A M Best.

"The point is, we have had the responsibility of formulating and managing the reinsurance programme of the Indian non-life industry for over 30 years. More than 80% of our business is generated by the Indian market.

Our international business portfolio, though modest, has a geographical spread over different parts of the world."

A pro-active approach

As a reinsurance company, GIC is committed to providing maximum capacity to domestic insurers. On behalf of the Indian non-life industry, the corporation manages the marine hull pool and the recently formed terrorism pool. It has also started underwriting life reinsurance and credit reinsurance business from both domestic and international markets.

On the global business front, GIC caters for the reinsurance requirements of insurers by providing capacity on treaty and facultative basis, with a targeted focus on the Afro-Asian region. "We are one of the largest reinsurance companies in the Afro-Asian region, excluding Japan, in terms of our net worth and asset base," explained Mr Ghosh. "Our international business portfolio has grown, from a level of $50m in the year 2000, to a present level of over $300m. We have been successful in establishing ourselves as a reliable reinsurance partner in the SAARC (South Asian Association for Regional Co-operation) countries, South-East Asia, Middle East and the African region."

The corporation has representative offices in London and Moscow; joint ventures or associate companies in Kenya, Mauritius and Singapore, and is in the process of opening a representative office in Dubai to tap the lucrative Middle East market. "Many of the nations in the African, South-East Asian, Middle East and East European regions come under the category of developing countries," commented Mr Ghosh. "More than 75% of our international business portfolio emanates from these regions. As a reinsurer, we see tremendous business opportunities in these countries since their retention levels are low and a large volume of premium is ceded to international markets." Clearly, with reinsurance protection becoming increasingly expensive in the western world, insurers in these countries are bound to look for a strong reinsurance partner in the region. And that is where GIC hopes to score.

The corporation is also actively involved in several regional insurance and reinsurance organisations, notably Asian Reinsurance Forum (ARF), AIRDC and FAIR Pools. "Under FAIR, there are three pools - one each for property, aviation and oil and energy - where member countries contribute according to understandings reached earlier," said Mr Ghosh. "The terrorism pool created in India has been fairly active, and is consistently growing in terms of volume, value, investment and profits. The aviation and energy pools go a long way in creating automatic capacity, thereby reducing dependence on the foreign reinsurance market."

It is interesting to note that, less than a year ago, the principal reinsurance companies of China, Japan, Taiwan, India, Malaysia, Singapore, the Philippines, South Korea and Hong Kong united to form an informal association under the ARF banner. The objectives of this association are three-fold - exchange of relevant business information, business traffic centre and business exchange, and enhancement of technology exchange. "The purpose of the summit in Delhi this year was to ensure that, as far as possible, member countries seeking reinsurance protection refer to any of the above countries, either on a one-to-one basis or through a forum created for this purpose, like a clearing house," explained Mr Ghosh.

GIC has also been the primary catalyst in the formation of organisations and associate companies like Loss Prevention Association (LPA) of India, the National Insurance Academy (NIA) and GIC Housing Finance (GIC-HF) and GIC Mutual Fund (GIC-MF).

- LPA was formed as a non-profit making company, to educate the general masses on loss prevention and risk management.

- NIA was set up along with the Life Insurance Corporation of India to impart quality insurance education and training to the personnel of the insurance industry, both life and non-life.

- GIC-HF has been providing housing finance to individuals since 1990.

Its operations have been profitable, as are those of GIC-MF, which invests on the country's stock market and in government securities. However, the parent is keen to move out of the mutual fund sphere.

"As the national reinsurer, we are committed to support organisations in the field of risk management, insurance/reinsurance education and research, as they complement the growth of the industry and create awareness among the masses," explained Mr Ghosh. And the GIC chief is convinced that the rich experience gained over the past three decades, in terms of technical skills, contacts and information, has earned the corporation a brand name for itself in the international market.

"On the global front, we have seen that the world's top 10 reinsurers, between them, control 35% of international business," he said. "This trend is likely to continue, especially because of the continued possibility of mergers and acquisitions. In emerging markets, there is a tendency to consolidate. Asian countries are still following the trends that have already emerged in the developing markets."

At the domestic level, the corporation, which earlier concentrated on the general insurance sector, is now looking at reinsuring bigger risks in the life sector. It is also preparing itself to aim at a larger client base, and not to wholly depend upon the obligatory 20% cession by Indian firms. "In liberalised markets, the existence of multiple insurers is usually taken for granted," explained Mr Ghosh. "We want to diversify our client base, and ensure that insurers come to us by choice. We need to become their preferred reinsurer."


Significantly, GIC has undertaken an operational restructuring exercise, a move aimed at re-defining its role in a liberalised environment, and to improve its marketing skills. The restructuring plan came in May this year, a month after the corporation introduced a one-time special voluntary retirement scheme, aimed at shrinking its 500-strong workforce by around 10%. As a leaner, meaner outfit, GIC expects to be more profitable.

It is also selling off its mutual fund business, currently operating under the umbrella of GIC Asset Management Company; and is offering a similar golden handshake to the mutual fund's employees, numbering around 50. The decision was taken so that the parent can concentrate on its core business of reinsurance.

For the revamping exercise, Mr Ghosh has sought the assistance of international management consultants to examine the organisational structure and manpower requirements in the context of changing market practices. "We are also very keen to improve our brand image; and have sought recommendations in respect of the strategies we should adopt for advertising and publicity," the chairman said. "The main issue we are faced with is that we have not fully leveraged our high net worth and ability to evaluate and underwrite large risks."

This is partly because GIC no longer has the authority over the four direct public sector non-life insurers that were earlier its subsidiaries, and over whom it had wielded a lot of power as a holding company. In addition, GIC does not have the marketing set-up to sell its reinsurance services in a highly competitive market. As a result, it is finding that private insurers are increasingly placing risks in overseas markets.

Until two years ago, GIC was involved in the direct underwriting of the aviation and crop insurance business. Following the opening up of the Indian insurance industry, the government de-linked the four arms and farmed out the crop insurance business into a separate agricultural insurance company. GIC's role was limited to that of a pure reinsurer.

"Our terms of reference to the consultants include evaluation of our underwriting and claim management practices," said Mr Ghosh. "We also want them to study our current investment policies and practices, in view of the changed environment where government-owned mutual funds and development banks no longer lead financial institutions in their investments in equity and project finance, respectively."

For the year 2003-04, GIC paid its owner, the government of India, a 30% dividend, amounting to Rs670m. For the ongoing financial year, it is aiming at posting higher profits and improving further on the business it generated in the last fiscal year - an objective that should bring a smile to the faces of the mandarins in New Delhi.

- Shirish Nadkarni is a freelance journalist.