Indian insurers see steep rise in reinsurance rates in April renewals

Although it was expected that Indian insurers would feel the heat of high reinsurance rates this renewal season, the quantum of a hike in rates has taken the industry by surprise.

Sources said most Indian insurers have seen a steep rise in reinsurance rates this renewal season, with rates hardening over 30 per cent or more.

Primary insurers transfer a portion of their risk portfolios to reinsurers by paying a certain premium to reduce the likelihood of paying a large obligation in the form of a claim.

Globally, the renewal of reinsurance contracts between primary insurers and reinsurers takes place in January. Reports had suggested that reinsurance rates touched multi-year highs this renewal season in the wake of adverse weather events, the war in Eastern Europe, and macroeconomic shocks. It was widely expected that the Indian market would also see some hardening of rates, but the quantum of the hike was anybody’s guess.

Experts had estimated that since India did not suffer any major natural catastrophe, the extent of the rise in reinsurance rates in the Indian market would not be as severe as seen in some international markets. That was not the case.

“Reinsurance renewals this time have been one of the toughest. The rates moved up in the range of 30-50 per cent, in spite of the Indian market performing decently. Plus, the attachments have been increased. If this trend continues, the underwriting risk will have to undergo change because it is not possible to pass on a 30–40 per cent hike to consumers. We have to build capacity that is more India-centric,” said a chief executive officer (CEO) of a private-sector general insurer.

“Globally, rates in some markets have gone up 50-60 per cent. In our market, it has also gone up 45–60 per cent for most players. That’s an input cost to us,” said Bhargav Dasgupta, managing director and CEO, ICICI Lombard General Insurance, in an analyst call.

“The impact of global hardening of reinsurance terms, especially on natural catastrophe protection, was experienced by insurers in April 1 renewals. We believe that although this will create short-term disruption, in the long run, it is expected to be positive and will bring in underwriting discipline. At the same time, for players like us, who have capital, brand, and presence across multiple lines of business at scale, we should benefit from this,” he added.

The industry was expecting a 10-15 per cent hike in reinsurance rates in the April renewal season. Like India, Japan, too, did not see any major natural catastrophe losses, but saw a hardening of reinsurance rates in a similar range.

Reinsurance is a practice whereby insurers transfer portions of their risk portfolios to other parties through some kind of agreement to reduce the likelihood of paying a large obligation resulting from an insurance claim.  The party that diversifies its insurance portfolio is known as the ceding party. The party that accepts a portion of the potential obligation in exchange for a share of the insurance premium is known as the reinsurer.

The hardening of rates was mostly in the property segment, while speciality rentals were flat, said a source aware of the development.

AT A GLANCE 

Reinsurance rates harden by 30 – 50%

Reports suggested reinsurance rates globally hardened to multi-year highs in this renewal season

The spike in rates is in the wake of adverse weather events, war in eastern Europe and macroeconomic shocks

India did not suffer any major natural catastrophe, still it is facing huge reinsurance rates