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Growth of Reinsurance in India Dr. D.K.Nema, Parul Jain

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Growth of Reinsurance in India Dr. D.K.Nema, Parul Jain ZENITH International Journal of Business Economics & Management Research Vol.2 Issue 1, January 2012, ISSN 2249 8826 Online available at http://zenithresearch.org.in/ GROWTH OF REINSURANCE IN INDIA DR. D.K.NEMA*; PARUL JAIN** *Sr. Assistant Professor, Department of Commerce, Dr. H. S. Gour University (A Central University) Sagar, MP. **Research Scholar, Department of Commerce, Dr. H. S. Gour University (A Central University) Sagar, MP. ABSTRACT World is an uncertain place and uncertainty due to natural and manmade disasters is increasing day by day. An individual cannot bear this increase in risk all alone; this gave birth to the need of insurance. Insurance is the promise of compensation for any potential future losses. Insurance Sector in India is registering a growth pattern after globalization as a result of which reinsurance sector came as a helping hand for insurers. Reinsurance is insurance of insurance companies, which is also increasing as a result of increase in uncertainty for insurers. The main objective of this paper is to discuss the growth of reinsurance sector in India in last five years (2005-2010) in various forms of reinsurance. KEYWORDS: Insurance, Reinsurance, Risk and Globalization. INTRODUCTION Mankind is exposed to many serious hazards such as fire, disability, premature death etc. While it is impossible for the individual to foretell or prevent their occurrence, so men want to secure himself against all these. This need of getting secure gave rise to the concept of Insurance. Insurance is a promise to pay possible future claims against a premium today. It is a function of insurance by its numerous forms to enable individuals to safe guard themselves against such misfortunes. The progress of science and technology bought many revolutions in the way in which the insurance companies operate, thus making insurers to face more complex risks, and special type of cover, for this insurers also want some security. An insurer accept only those risk that could be entirely handled by him , so to overcome the problems of insurers and to increase their risk taking capacity concept of Reinsurance was introduced that can help the insurers to provide protection for wide range of risks. In principle, both these Insurance and Reinsurance are tools of risk management, mutually support and supplement each other in providing risk mitigation to the individuals and organizations at micro level and to the nations at macro level. Conceptually, both insurance and reinsurance are instruments of risk transfer and risk financing. Thus in terms of M. Grossmann we can define Reinsurance as “the transfer of a part of the hazards or risk that a direct insurer assumes by way of insurance contract or legal provision on behalf of an insured, to a second insurer carrier, the Reinsurer, who has no direct contractual www.zenithresearch.org.in relationship with the insured.” 57 ZENITH International Journal of Business Economics & Management Research Vol.2 Issue 1, January 2012, ISSN 2249 8826 Online available at http://zenithresearch.org.in/ OBJECTIVES OF THE STUDY The study is conceived with the following objectives: 1. To study the growth of reinsurance business in India. 2. To study the growth GIC Re the national reinsurer. RESEARCH METHODOLOGY The present study is based on secondary data, mainly collected from annual reports of Insurance Companies, IRDA annual reports and journals, books and websites. LITERATURE REVIEW A substantial number of academic work deals with reinsurance, but a few have investigated upon the reinsurance importance and need. Singh Manjit and Kumar Rohit in their paper(2009, Indian Management Studies Journal) analyzed that the rapid expansion of Public sector Insurance companies since nationalization has given rise to a number of problems related to the image, operational efficiency, productivity, and the quality of portfolio of the system as a whole. The paper titled “Insurance and Reinsurance The industry on the growth Trajectory” by B. Venkant Ramana (June 2008) analyzed that Insurance and Reinsurance are the most booming industries, maintaining upward surge and an all-round growth, on both the domestic and global fronts, particularly in growing economies like India and China. While globalization and liberalization have triggered robust growth and consolidation, rationalization of regulatory mechanisms and innovation in product design, pricing and delivery systems have put the markets on a viable growth trajectory. David J. Cummins (22, June 2007) in their paper, “Reinsurance for natural and man-made catastrophes in the US: current state of the market and Regulatory reforms of the market and regulatory reforms,” reviewed the response of the worlds reinsurance industry to recent mega catastrophes and provide recommendations for regulatory reforms that would improve the efficiency of reinsurance markets. The paper also considers the supply of insurance and reinsurance for terrorism and made recommendations for joint public private responses to insuring terrorism losses. The analysis shows that reinsurance market respond effectively to recent catastrophe losses and that substantial amount of new capital enter the reinsurance industry very quickly following major catastrophic events. Considerable progress has been made in improving risk and exposure management, capital allocation and rate of return targeting. The current inadequacy of the private terrorism reinsurance market suggests that the federal government may need to remain involved in this market, at least for the next several years. The future of Reinsurance – Trends and challenges” (4 May 2005) Workshop was organized jointly by the Swiss Re Centre for Global Dialogue and the Institute of Insurance www.zenithresearch.org.in Economics at St Gallen University (HSG). The one-day event was structured around a recent publication by the IVW entitled “Trends und Herausfor derungen in der Rückversicherung – 58 ZENITH International Journal of Business Economics & Management Research Vol.2 Issue 1, January 2012, ISSN 2249 8826 Online available at http://zenithresearch.org.in/ Perspektiven der Praxis” (“Practical perspectives on trends and challenges in reinsurance”). This discussion, moderated by Walter Ackermann, revolved around fundamental issue: understanding the value reinsurance creates. The workshop was concluded with the idea that one of the main challenge in the year ahead would be to improve its image both with shareholders and clients. GROWTH OF REINSURANCE BUSINESS IN INDIA For the convenience of the study the growth of reinsurance is classified into three categories- i. Reinsurance before Nationalization ii. Reinsurance after Nationalization iii. Reinsurance after Liberalization. I. REINSURANCE BEFORE NATIONALIZATION In India, the period from 1951 onwards was marked by a rapid growth of insurance business; this was because of large scale economic development in the country during the period. The increased insurance business required the reinsurance protection. At that time reinsurance was arranged from the foreign markets mainly British and Continental. In 1956, Indian Reinsurance Corporation, a professional reinsurance company was formed by general insurers operating in India and it started receiving voluntary quota share cessions from member companies. In 1961, the government made it completely statute on the part of every insurer to cede 20% in Fire and Marine Cargo 10%, 10% in Marine Hull and Miscellaneous insurance and 5% in Credit and Solvency business to approved Indian reinsurers, namely Indian Reinsurance Corporation and Indian Guarantee and General Company. The above mentioned percentages were, to be allocated equally between the two reinsurers. Thus the reinsurance market was further strengthened by the addition of second professional reinsurers. In 1966, Indian Insurance Companies Association initiated the format ion of Reinsurance Pools in Fire and Hull departments to increase the retained earned premium in the country. II. REINSURANCE AFTER NATIONALIZATION At the time of Nationalization of general insurance business in 1971, there were 63 domestic insurers and 44 foreign insurers operating in country and each company had its own reinsurance agreements. In 1973 these companies were reconstituted into four companies. They are: www.zenithresearch.org.in 1. National Insurance Company Limited 59 ZENITH International Journal of Business Economics & Management Research Vol.2 Issue 1, January 2012, ISSN 2249 8826 Online available at http://zenithresearch.org.in/ 2. The New India Assurance Company Limited 3. Oriental Insurance Company Limited 4. United India Insurance company Limited These four companies were thus left to operate in the country as subsidiaries of a holding company known as GIC (National Reinsurer Act 1972). After nationalization, GIC became the Indian reinsurer. After nationalization of general insurance the outward reinsurance agreements of the Indian insurance companies were rearranged. The main objectives were rearranged. The main objectives were to maximize domestic retention. III. REINSURANCE AFTER AND LIBERALIZATION As a part of the process of liberalization of the insurance industry in India, the Indian Regulatory and Development of India (IRDA) was given the authority of regulating and controlling the conduct of insurance busines s in India. IRDA frames rules and regulations for various aspects of the Insurance business including reinsurance. The current regulations relevant to reinsurance are attached as an Appendix II
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