Swiss Re pitches for entry of foreign reinsurers  ( November '21,2002, ET)

Global re-insurance and financial services company Swiss Re has made a pitch for entry of foreign reinsurers in the Indian market. In a study titled “Global reinsurance — an important factor for India’s sustained economic growth and prosperity, Swiss Re has brought out a number of arguments in favour of allowing local presence of foreign re-insurers, which will benefit the economy.

“We feel that Swiss Re will be able to provide superior financial services based on our global expertise in India, if the laws provide for higher equity participation for foreign insurance companies.

Right now, we are in discussions with the Insurance Regulatory and Development Authority (IRDA) for opening up a branch office in the country,” said Pierre Ozendo, member of the executive board, chief executive, Asia division (property and casualty business group).

In the study, Swiss Re says: “There is a strong case for the opening up of India’s reinsurance markets. The local presence of global re-insurers is set to benefit the development of India’s reinsurance markets and the nation’s economy at large.”

The benefit to the insurance industry, says the Swiss Re study, is lower cost of capital coming from efficient use of the global reinsurers’ capital. Local clients will obtain access to services of global reinsurers and receive superior financial security.

The crucial advantages would be that domestic presence of foreign reinsurers leads to a higher national retention of premium income. This means that lesser amount of funds will be utilised for overseas reinsurance.

“The domestic regulator’s grip on the quality/security of re-insurance cover improves. The risk of overseas based foreign reinsurers’ insolvency disrupting the national insurance market diminishes,” said the report.

Swiss Re feels that India’s insurance market is still under-developed, with huge potential for growth.

During ‘01, the country’s non-life insurance business showed a real growth rate of 6-7%, while cumulative premium collections have risen to over Rs 12,000 crore. In the life insurance business, the real growth was over 20%, with premium collected from policy-holders rising to close to Rs 45,000 crore. However, shortcomings are visible when one compares the country’s non-life business to other Asia Pacific market. With a size of $2.3 bn, India’s non-life business is one-fifth of the size of Korea’s market ($14.1 bn).

Non-life premium as a percentage of GDP in ‘00 was 0.5%, which was much lower than other global markets such as Switzerland and US (over 4%), and Asian markets such as South Korea (over 3%).

Swiss Re expects a regulatory shift in the country over the medium term, from micro managing insurance markets and companies towards solvency-based supervision.