India’s only private reinsurer is considering quitting the business less than a year after new regulations came into force to help nurture domestic reinsurance capability.
ITI Reinsurance, which is backed by Sudhir Valia’s Fortune Financial Services, has complained that unfair regulations have prevented it from writing any business since it won a licence in December last year.
“We are willing to surrender our licence if the division of obligatory cession continues to be skewed and other regulations are not suitably changed,” Valia told Indian national news agency IANS.
On the face of it, domestic reinsurers were given preferential status under the new regulations, which stipulate that domestic reinsurers are offered all cessions first, before they are offered to the newly established branches of foreign reinsurers.
But in practice, state-owned GIC Re remains the only domestic reinsurer writing any business due to a stipulation that Indian reinsurers are only entitled to a right of first refusal after three years of stable credit ratings.
“The regulation is not only illogical but also anti-competitive,” D Varadarajan, a Supreme Court advocate representing ITI, told IANS.
This is not a new complaint. Local brokers argued at the time that this treatment was “regressive, anti-policyholder and anti-competitive”.
In a January letter they wrote: “[Insurance Brokers Association of India] is of the strong view that for a more balanced and policyholder-centric interpretation in line with principal objectives of the regulation, the reinsurance order of preference regulations should be at least deferred for six months till the implications of the same are debated from a policyholder perspective.”
For its part, ITI complains that it is unfair that it was asked to put up Rs5 billion of capital — more than double the Rs2 billion stipulated under the regulation for reinsurers — but still cannot do business.
“How can a new company like ours have a credit rating for three years?” asked R Raghavan, ITI’s chief operating officer.
The first global reinsurers approved to open branches were Hannover Re, Munich Re, Reinsurance Group of America, Scor and Swiss Re. Lloyd’s, XL Catlin and Gen Re followed. While these foreign reinsurance branches are currently higher up the pecking order than ITI in India, GIC Re is still the dominant player.
Most foreign branches were open in time for the April renewals, but the soft market conditions resulted in significant pressure on pricing.
However, the prize for India’s foreign reinsurance contingent is the underlying growth of the country’s insurance industry, where premiums are growing by as much as 30%, driven by agriculture, motor and health. Even so, non-life insurance penetration is still just 0.49% and represents what foreign reinsurers hope is a golden goose.
That remains to be seen, but for ITI the moment of reckoning may come even sooner.