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Rise in global reinsurance rates likely to pinch Indian insurers, may lead to increase in premium rates

29 December, 2011

Rise in global reinsurance rates this year may force Indian insurers to shell out extra for the upcoming renewals, thus leading to an increase in premium rates on insurance covers.
Global reinsurance companies , hit by natural calamities such as earthquake in Japan and floods in Thailand and Australia, will charge 15-20% higher for policies that come up for renewal on January 1.
Unlike the western market, reinsurance programmes for the Asia-Pacific begins on April 1.
General Insurance, India's sole reinsurer, has taken a hit of more than 900 crore during the year due to natural disasters in Japan, Thailand, Australia and New Zealand.
"Terrorism insurance rates got affected after 9/11 attack in the US. Even though the attack happened in the US, terrorism risk rates all over the world went up. So even if the catastrophes have happened in other parts of the world, reinsurers will pass on the hit to the Indian market," said Yogesh Lohiya, chairman and managing director of GIC.
Treaty reinsurance is reinsurance of insured exposures, which are accepted within the terms of the reinsurance contract, called a treaty. There are two kinds of treaty reinsurance - proportional and non-proportional. In proportional treaty, reinsurers pay for losses in the same proportion as the amount of the premium they receive, while in non-proportional arrangement, reinsurers pay an amount greater than the threshold.
According to a Swiss Re report, total insured losses have doubled in 2011 compared with the previous year. During the year, the global insurance industry took a hit of $108 billion from natural catastrophes and man-made disasters against $48 billion in 2010.
Claims from natural catastrophes alone reached $103 billion in 2011 compared with $43 billion a year ago.