A rate upsurge across treaty lines following last year's Mumbai floods is hindering the renewals

Indian insurance companies' negotiations with international reinsurers for renewal of treaties have hit a rough patch, with the latter insisting on tightening their limits after the huge losses sustained during the floods that hit Mumbai in 2005.

Treaty arrangements with foreign reinsurers are still at the discussion stage, but the overseas bodies have made it clear that discounts would not be available for the financial year 2006-2007. This implies that reinsurance tariffs are likely to escalate for catastrophe risk when treaties are finalised by mid-February. The firming up in reinsurance has already been reflected in the facultative reinsurance contracts.

The non-availability of discounts means that premiums are likely to move northwards for asset risk covers, with primary insurers expected to earn lower ceding commissions in comparison with the current year. "Among the covers coming up for renewal are refinery, power plant and industrial risks, all of which are likely to face steep increases in premium as insurers pass through the costs of increases in reinsurance tariffs," said Jitendra Bhagat, director and CEO of ASL Insurance Brokers. "Given the state of claims during the current year, rates can be expected to harden."

This increase has also been caused by a change in reinsurers' perceptions of the probable maximum loss ratios. As well as flood-related claims that hit both public and private sector insurers in the Indian market, a claim of Rs11.50bn ($260m) for fire damage to the Bombay High oil platform of state-owned Oil & Natural Gas Corporation on July 27 was also made.

"What is also driving up premiums are the losses suffered by the large international insurance companies themselves," said Bhagat. "Swiss Re and Munich Re incurred losses to the extent of $3bn between them due to the havoc wreaked by Hurricane Katrina in the US and widespread floods in Europe."