Several reinsurance companies have been formed in South Asia over the past four years with great expectations of garnering home-grown business, as well as business from the region. Within a short period into their operations, many have realised that the going was not as rosy as it looked, with a few still testing the waters and others waiting for regulatory changes to get their business in motion. We look at how these new reinsurers are doing and the road ahead for them in this highly competitive environment.
ITI Re – To surrender or not to surrender
Touted as “India’s first private reinsurance company”, the new kid on the block with a start-up capital of INR500 crore (US$77 million), entered the scene in December 2016 with much fanfare. But a few weeks into its operation, it realised that rules were not favourable for it to do business and survive in the highly competitive domestic reinsurance space, where GIC Re is the incumbent Indian reinsurer.
The company is promoted by Mr Sudhir Valia, who is one of the country’s top stock market investors. With its international plans kept on hold, the company is in limbo and recent media reports are saying that it was ready to surrender its licence.
Part of the IRDAI’s new regulation for reinsurers states that primary players can only reinsure with a domestic reinsurance company, whose credit rating shows financial stability in the past three years. This will cause financial “hara-kiri” for the company as it will generate no returns for the huge capital deployed in the business.
For GIC Re, its main source of domestic business is from obligatory cessions, which currently stands at 5%. ITI Re, being an Indian-domiciled entity, is keen to get a share of this huge market, which in conservative estimates can be worth INR5,000 crore.
Reinsurance experts in the market say that the company has only two options before it – Surrender its licence or look for a foreign joint-venture partner. However, in the current market scenario, foreign players will be keener to set up branches in the country, than be tied down with a new entity.
Nepal Re – Domestic first policy
Nepal Re, Nepal’s first reinsurance company was set up in July 2015 with a paid-up capital of NPR5 billion (US$50 million) and underwrites all classes of reinsurance business in both the life and non-life sector.
The company was established in the PPP model with equity participation from the Government of Nepal, insurance companies (both life and non-life), as well as a few financial institutions operating in Nepal. The company’s strategy has been to get all local non-life insurers on board through policy cessions and treaty cessions.
Mr Chirayu Bhandari, CEO, Nepal Re, when asked about the challenges they faced said: “Initially, we faced a number of challenges from the local companies, as they doubted our technical skills and also if the company had sufficient and well-rated retrocession back up.” He believes that over the last two years, the faith of the local market in the company has improved and the company has been able to generate business from local market.
Policy cessions have increased in terms of percentage and participation of the companies in number. Since 2016, the company has started to accept facultative reinsurance and treaties from the SAARC, Afro-Asian and Middle East region.
“We want to develop Nepal Re into a recognised and established player in the region and we are aware that it will take time for us to also be capable to underwrite and quote the terms,” said Mr Bhandari on his long term plans for the company.
Currently, the company accepts facultative business and treaties, following lead terms only. He is hopeful that once Nepal establishes a federal government as per the constitution of the country, industrial growth will be revived and economic activities will happen, which will also have a huge impact on the insurance industry in Nepal, including that of Nepal Re.
GIC Bhutan Re – Cautiously treading new paths
GIC Bhutan Re was established in September 2013 with a total paid-up capital of BTN500 million (US$7.5 million).
The company enjoys the patronage of Bhutan’s two insurance companies. Reinsurance regulations mandate that 20% of business underwritten by these two insurance companies has to be ceded to GIC Bhutan Re.
The company whose major business comes from the domestic market, currently does business in 28 countries, which also includes Singapore and the Philippines. The company’s overseas portfolio is expected to grow further in 2017 with it exploring markets in Vietnam and Cambodia. The company’s GWP in 2016 was BTN338.9 million compared to BTN153.6 million in 2015.
NITF – Splitting to become a regional player
The Sri Lankan government, with help from the World Bank is planning to split the National Insurance Trust Fund (NITF) into two distinct corporate entities – one to focus on reinsurance as a regional player and the other to focus on the direct insurance business which the company currently does, including state sponsored schemes for the uninsured.
Mr Manjula De Silva, Chairman, NITF said: “This is progressing well with the help of a team of experts from the World Bank and we feel the time has come to decouple these two areas to have a better focus.”
The company was established by in 2006 by the Sri Lankan government for implementation of its schemes and over the last decade introduced several insurance schemes and also offers reinsurance support to domestic insurers. It is mandatory for all primary insurers in the country to cede 30% of their total liability with the company.
NITF has performed well in 2017, achieving a growth in almost all its business lines including in reinsurance. “The biggest challenge the company faced was the drought in some areas triggering claims on our agricultural insurance covers, while other parts of the country experienced floods triggering claims under the National Natural Disaster Insurance Scheme and the compulsory reinsurance cover for insurance companies,” said Mr De Silva.
He feels there is immense potential for reinsurance companies to grow in the region even in the midst of all the challenges if one is selective and gets the pricing right. He believes that small emerging players have to be extra careful not to be too adventurous and burn themselves out. “We will come into the market slowly and steadily understanding our limitations, but will create a unique position for ourselves in the region gradually,” he said. A