There is a massive re-rating going on in the entire insurance space. It was started by private sector insurance companies in the last two, three days. Even the public sector enterprises, insurance and reinsurance companies are getting completely re-rated. The view in the market and the industry is that there could be policy making plus some impetus coming in which could improve volumes. What are your thoughts on the way business momentum is at your end?
We are doing well. I guess maybe the interest coming forward now is based on the fact that the insurance industry is doing well now as well as maybe the understanding of what this industry is all about is also happening in the market. From GIC’s perspective, our business has been doing well. We have managed to post very good results for 2022-2023 and we are continuing that forward in the current year for the last two quarters as well.
Further, we have also got a credit rating boost from US credit rating agency, AM Best, since we are an international company doing business in over 150 countries we need a credit rating from an international agency. In our case, it is AM Best and they have boosted our credit rating as well. So all these possibly play a good part in ensuring that people have a favourable view of the market.
This point, which you raised for us, international credit agency endorsement, how does that benefit your business model?
Typically what happens is when you are a reinsurer and you typically write business around the world, obviously you do not have offices in all of these countries that you are writing. So what would happen is regulators just to ensure that there are no fly-by-night operators, normally try and ensure that reinsurers of a particular brand or of a particular kind of rating are only allowed to do business. So getting a better rating always helps us to access better quality business abroad. So that is a definite welcome relief for us.
I was also looking at your breakup but within motor, health, agro which are the segments which are seeing the maximum amount of growth?
I would say health because post Covid, there has been a lot of understanding amongst the investing public among the insuring public that you need to be adequately covered because even healthy people started getting claims. So that is an area where there were high claims ratios but going forward in the last two years, we are seeing tremendous growth in that sector.
Coming to motor insurance specifically, 54% of vehicles on the road are uninsured. How do you think it is practical to get that large a sum under the insured basket? Is it a possibility even in the next one to two years?
Yes, it is, though may be not the entire number. The insurance industry will have to work closely with the government on this because the government would have all the information available and based on that we can use both the government platforms as well as the insurance companies own reach and ensure that this is done. This very much in the bandwidth of all people concerned whether it is the regulators, the ministry or the insurance companies, we are all aware of the fact that this is something which is happening and we need to ensure that all these cars are covered because that is actually a mandate.
I would not know whether in the next one year we would be able to get all these cars under the ambit of insurance, but this is something which is very much on the agenda, as far as insurance companies are concerned.
This is something you have been discussing with the government. Is this something which you have had meetings about, recommendations, discussions already in place?
Absolutely. This is something which we have been discussing with the union government as well as the state governments. The regulators are on to this and everybody has realized that this is something that we need to do. This is an area which has been let go and obviously this is an area which we need to look at, both from a business perspective as well as to ensure that the mandatory insurance is there.
This push that is coming, will it be in the form of some policy move from the regulator? Yes, of course, such a big half of the population of the entire vehicles cannot be brought into the system in a year’s time. But will it not improve the outlook on your volumes for the next two to three years and if yes, how much additional business are we talking about here?
Then you will have to speak to insurance companies on this because what happens is, motor is something which typically gets written by insurance companies and mostly retained by them because it is a retail product compared to the small premiums and all the companies have the capacities to retain this business.
We, reinsurance companies, provide cover on a typical motor portfolio that would be covering them for something which is catastrophic in nature. So an earthquake happens or a flood happens and a number of cars get affected, that is where a reinsurer like GIC would step in. Typically if you want to look at how much these insurance companies are looking at, I guess you will need to speak to maybe a New India or an ICICI.
Let me just quickly come to the rest of your business as well. I understand that reinsurance rates are getting revised from 15th December. How much does that impact you, especially in the fire and the property segment?
You said re-insurance rates are getting revised.
Is that correct?
No, not really. So what happens is reinsurance is something which happens mostly, it is once in a year kind of stuff. So there are certain markets which do their reinsurance as on 1st January. And then for the entire year, those rates are valid. For India, since we follow a financial year of April to March, our renewals happen in April. Typically that is the time when we would change the insurance rates, whether it is upwards or downwards, depending on performance, depending on profits, depending on how the portfolio has changed so that is when it would happen.
We are currently in the process of doing the renewals for our 1st January renewals which is most of the international markets since they follow a calendar year method. That is still going on. We expect prices to improve definitely on the reinsurance front, because internationally there have been, you know, the last few years have been very difficult. There have been a lot of catastrophic events happening around the world. So prices increased last year. I believe that prices would increase this year as well.
Your combined ratio continues to be above 110%. When do you expect it to come down to below 100?
This is something that we continue to look at and work at relentlessly. But what you need to understand is, basically this is not something which would happen across the world for everybody. There are a few developed markets where you would expect combined ratios to remain below 100, because that is the way that market works.
In a developing market like India, where GIC writes almost 70% of its book, the combined ratio for the entire market is close to 120. So obviously, for us to come much below that to below 100, is something very difficult. We also need to understand that this is a market in which premium comes up front. Unless you pay the premium, the insurance company does not take up the risk. So the premium comes up front, the claims happen through the year. A good float of money gets created which is invested, the investment market in India is good.
Even on a fixed income basis, we are able to get close to 7.5 to 8%. So obviously, we need to realise that investment returns would ideally be used to ensure that the market is viable. So trying to look at a combined 100 in the near future is something that would be silly on our part. It is something that we are working on. But then I would say anywhere up to 105 to 108% of combined, pure combined, is still very much viable for us.
What I normally tell people is, you please look at our operating results because what operating results contain is the investment income which has come from the policyholders’ funds. These are the funds which are kept with me because I am doing reinsurance and insurance as a business. As long as that fund and the returns from that give me enough to be sustainable, give me enough to be profitable on an operating basis, I think we are doing well.