REINSURANCE

Insurance is a very risky business. While the insurance companies offer insurance to its clients, they themselves get exposed to very high financial risks. Re-insurance business emerged out of this reality. When an insurance company buys insurance cover for its insurance business, a new segment comes into being i.e., re-insurance.

Experts believe that in absence of re-insurance, insurance industry in a country will not grow to the level of the social requirement—as insurance companies will either not provide insurance cover in several areas or they will charge very high premiums on the policies they offer (to neutralise the risk). Keeping this thing in mind, the Government of India took initiative to convert the existing public sector general insurer, the GIC, into a re-insurance company (in 2000). Known as the GIC Re, it remained the only reinsurance company in the country till now. Over the time, this emerged as a major player in the global reinsurance industry. Reinsurance industry is regulated by the IRDA in the country.

Reinsurance industry has a very low penetration in India. Lack of competition has been cited as a major factor behind it—it has only one player by now. To promote competition and vibrancy the IRDA announced (late 2015) to open up the industry for the entry of foreign companies. In March 2016, the IRDA gave initial approval (known as R1, in regulatory parlance)

to four foreign reinsurance companies. Among them, two belong to Germany (Munich Re, Hannover), one each to Switzerland (Swiss Re) and France (SCOR). Munich Re is the largest reinsurance player in the world while Swiss Re is the second largest and Hannover comes third in global size. Two other foreign companies (US-based Reinsurance Group of America and UK-based XL Catlin) are waiting for the initial approval. These companies will start their operation once they get the final approval (known as R2).