publisher page irdai journal... · stakeholders, regulatory framework applicable to reinsurance...

1Reinsurance

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Publisher Page

Dr. Subhash C Khuntia

The theme of the current issue of the journal is‘Reinsurance: It’s evolution and role in the Indiancontext’, with several articles on various aspectsof the important subject.

The Reinsurance landscape in India isundergoing a series of important changesparticularly after the passage of the InsuranceLaws (Amendment) Act,2015, that facilitated theentry of major global reinsurers into the Indian,market through their branches. Since then, nineForeign Reinsurance Branches (FRBs) and twoservice companies under Lloyd’s India haveopened offices in India.

India being recognized as the fastest growinglarge economy, the insurance market in India ispoised for excellent growth in the coming decade.Significant mortality/property/health insuranceprotection gaps, demand for technology basedcustomized insurance covers, increasing cybersecurity concerns and increasing incidence ofcatastrophic events arising out of climate risksare some of the current challenges faced byIndian insurers. In this context, the reinsurersare expected to extend their technical andfinancial capabilities to Indian insurers ineffectively addressing the situation.

After active consultations with all thestakeholders, regulatory framework applicable toreinsurance business is largely consolidated andupdated by notification of IRDAI (Reinsurance)Regulations, 2018. The framework duly

recognizes the critical role played by Indianreinsurers, FRBs, entities operating out of theGIFT City and Cross Border Reinsurers insupporting Indian insurance market. Withcurrent Indian annual reinsurance premiumof around Rs. 50,000 crore, there is decentscope of business for all. Changing dynamicsof the market demand a highly motivated andprofessional work force equipped to handlevarious nuances of reinsurance business andtherefore, capacity building in the sector needsnecessary focus. The objective is to make Indiaemerge as a reinsurance hub.

‘To protect the interest of policyholders and tosecure fair treatment to them’ being theprimary mission of IRDAI, ‘Policyholderprotection- The road traversed so farand the way forward’ will be the theme ofthe next issue of the Journal.

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2 Reinsurance

Dr. Subhash C KhuntiaDr. Subhash C Khuntia

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N˛Á ™ÁT|>N˛Á ™ÁT|>N˛Á ™ÁT|>N˛Á ™ÁT|>N˛Á ™ÁT|> \å|¬ Nz˛ EÁTÁ™y EÊN˛ N˛Á uƒ Æ “ÁzTÁ @ \å|¬ Nz˛ EÁTÁ™y EÊN˛ N˛Á uƒ Æ “ÁzTÁ @ \å|¬ Nz˛ EÁTÁ™y EÊN˛ N˛Á uƒ Æ “ÁzTÁ @ \å|¬ Nz˛ EÁTÁ™y EÊN˛ N˛Á uƒ Æ “ÁzTÁ @ \å|¬ Nz˛ EÁTÁ™y EÊN˛ N˛Á uƒ Æ “ÁzTÁ @

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InsideInsideCEO’s CORNER 7 A World at Risk:

Underinsurance in India- Shankar Garigiparthy

ISSUE FOCUSRelevance of Life Reinsurance

in current Indian context- Sunayana Mahansaria

Factors influencing theReinsurance demand in India: A

study - P Kalyani, Prof. S Sreenivasa Murthy

Reinsurance regulations:a step forward

- N M Behera

Re -insurance and Indianreinsurance market

- Mr. Riddhi Biswas

Reinsurance: The Backbone of CropInsurance - Ajay Singhal

Cyber Insurance and ReinsuranceTrends - Neha Anand

‘Reinsurance -Its evolution androle in the Indian Context’

- Mr. Sanjay Datta

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39Climate Change - modelling and

pricing challenges- Ms Prachi Ajmera,

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In the classic book ‘AGAINSTTHE GODS’ the AmericanEconomist Peter Bernsteiniterates that therevolutionary aspect whichdelineates the boundarybetween modern times andthe past is mastery of risk.Insurance and reinsurancehelp in mastering of risk ofany sorts by the modernsocieties. From the risks oflaunching of satellites in spacethrough rockets to managingthe financial losses in theaftermath of naturalcatastrophes such asearthquakes or protectingindustries against man-madecatastrophes such asterrorism etc., reinsurancenot only helps insurers byproviding financial capacityfor sharing of risks but it alsoplays a pivotal role in worldwide risk management.

The Insurance Laws(Amendment) Act 2015

Reinsurance

permitted the establishmentof branch offices in India byforeign companies engaged inreinsurance business (foreignreinsurer branches),expanding the scope andchoice, for placement byIndian direct insurers. TheIRDAI Re-InsuranceRegulations 2018, werebrought out with theobjectives of maximizingretention within the country,developing technical andfinancial capacities of theinsurance companies and alsofor simplifying theadministration of business.Given today’s highlycompetitive scenario in theinsurance sector, aninsurance company has to notonly work on adequate pricingof its products but also oneffective capital and riskmanagement. Such being thecentral role played by theReinsurance sector, the

current issue of IRDAIJournal is on the theme ‘Reinsurance- its evolutionand role in the Indiancontext’.

Included under the CEO’scorner is the article titled ‘AWorld at risk -Underinsurance in India- ’by Mr. Sankar Garigiparthy,CEO, Lloyd’s India, whichdiscusses the plight ofUnderinsurance in India andabout Insurance in India inthe context of the reportreleased by Lloyds viz. ‘Aworld at risk’.Mrs.Sunaayana in her article‘Relevance of LifeReinsurance in the currentIndian context’ explains thevarious benefits and othervalue added services offeredby the reinsurers to the lifeinsurers in India and how theLife insurance industry byforging a healthy relation withthe reinsurers can achieve a

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higher reach. Mrs. P. Kalyaniand Prof.S. SreenivasaMurthy vide their researchpaper titled ‘Factorsinfluencing the Reinsurancedemand in India- A study’submitted their findings thatfirm size, underwriting risk,long tail business and returnon assets of an insurersignificantly influence itsreinsurance demand.Mr.N.M. Behera in his article‘Reinsurance regulations- Astep forward’ has giveninsights into the newly framedReinsurance regulations andexpressed that they are likelyto have a positive impact onthe sector in general alongwith spinoffs such as growthin foreign exchange andnational income, assuredsecurity, employmentgeneration and enhancedtechnical and financialcapabilities. Mr. RiddhiBiswas in his article‘Reinsurance and Indianreinsurance market’ presents

an overview of thereinsurance sector in India.Importance of reinsurance inadministration of cropinsurance across variousjurisdictions is discussed byMr. Ajay Singhal, in his article‘Reinsurance- The backboneof Crop Insurance’. Mr.Sanjay Datta, in his article‘Reinsurance- Its evolutionand role in the Indian context’presents an overview of theevolution of the reinsurancesector in India and its currentstatus. Mrs. Neha Anand inher article ‘Cyber Insuranceand Reinsurance trends’depicts the ever increasingcomplex nature of crimefocusing especially on the riskof cyber attacks and how theyare a potential threat to thebusiness operations of anycompany, thus building thenarrative for the need ofreinsurance for cyberinsurance in today’s world.Inher article ‘Climate change-Modelling and Pricing

Challenges’, Ms. PrachiAjmera stresses upon theimportance of having a soundtechnological disastermanagement system in placeto deal with naturalcatastrophes alongsidehaving a National Nat CatInsurance Program to dealwith such events.

With rapid changes sweepingacross the country viz.digitalisation, globalisation,and urbanisation – we areseeing an increasing amountof new risks. Many of theseare intangible – things likecyber, intellectual property,and reputation risk areexamples. Providinginsurance to these newintangible risks presentsgreater challenge to insurersas well as reinsurers. Theinsurance and reinsuranceindustry together needs torise to the occasion to meetthe expectations of customersin this digitally dependentworld.

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‘A World at risk: Underinsurance in India’

CEO’s Cornerw

Shankar Garigiparthy,

Country Manager & CEO, Lloyd’s India

Underinsurance, or thelack of adequate insuranceagainst risks, can have asignificant effect on oureconomies and livelihoods.In the uncertain times welive in, we are facinggrowing threats of naturaldisasters and newemerging threats such ascyber-attacks andterrorism.

Underinsurance, or the lack ofadequate insurance againstrisks, can have a significanteffect on our economies andlivelihoods. In the uncertaintimes we live in, we are facinggrowing threats of naturaldisasters and new emergingthreats such as cyber-attacksand terrorism. Infrastructure,public assets and servicesmust be restored after theseincidents inevitably strikeand without insurance,recovery efforts fall on thosewho are already most affected– such as the individuals whohave lost their homes, thebusinesses who facedisruption, and thegovernments that must helpthem through it.

Lloyd’s recently released Aworld at risk, the seconditeration of its flagship globalunderinsurance report,undertaken in conjunctionwith the Centre for Economicsand Business Research(CEBR). This report looks atnon-life insurance levels andinsurance penetration datafor natural catastrophes infourty three countries across

the world. It reveals thatthere is still a significant gapbetween the level ofinsurance needed to coverglobal risks, and the actualcosts to businesses andgovernments in rebuildingand recovery efforts. In 2018,the value of the globalinsurance gap stands at USD162.5 bn – a decrease of 3%from USD 168 bn sinceLloyd’s first underinsurancereport in 2012.

There are many importantfindings from Lloyd’s report.The main one being that the

global insurance gap hashardly closed. A 3% decreaseover six years, especially at atime when the global economyhas grown exponentially(which means more assets atrisk), highlights the threat toglobal economic developmentthat underinsurancepresents.

Worryingly, India continuesto have one of the highestlevels of underinsuranceglobally, despite progressbeing made in insurancepenetration (India’s rateslightly increased to 0.9%,from 0.7% in 2012). At USD27 bn, India’s insurance gapaccounts for 17% of the globalgap, an increase from USD19.7 bn in 2012. Out of the 43countries analysed, Indiaranked 37th for its overalllevel of insurance penetration– the same as it received in2012. Since the last Lloyd’sreport, India is the onlycountry that has dropped outof top ten countries withhighest expected losses perannum as a percentage ofGDP, however, this may

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partly be due to thePhilippines entering the topten because of the devastatingdamage it suffered fromTyphoon Haiyan in 2013.With India being the secondmost populous country in theworld and it being highlyexposed to risk from naturalcatastrophes, more must bedone to close this gap.

The report also highlights asplit between the developingand developed world. Astaggering 98% or some USD160 bn of the totalunderinsurance gap comesfrom developing countries.Besides India, the rest of Asiaalso features significantlyamong the underinsured. Thismight be because the regionis most exposed to risk fromnatural disasters compared toanywhere else in the world(Lloyd’s City Risk Index 2018estimates that 54% of AsiaPacific’s risk exposure comesfrom natural disasters alone)with Bangladesh, Indonesia,the Philippines and Vietnamjoining India to be among thecountries with the lowestlevels of insurance (as a ratioof GDP).

The report also focusesspecifically on the increasingrisk of flood in many parts ofthe world, much of which canbe attributed to the impact of

man-made climate change.Asia suffers more floods thanany other place in the world,with more than 600significant floods occurringsince 2008. India is nostranger to this, with theKerala region undergoingearlier in 2018 what someofficials have called the worstflooding in a century – almost500 dead and missing, at leasta million displaced and officialestimates of USD 5.5 bn indamage.

While the threat from naturalcatastrophes is everincreasing, countries also facea new threat in cybercrime.In 2017, cyber-attacks wereestimated to cost businesses

up to USD $ 608 bn a year –the potential for loss of data,revenue and reputation canbe just as destructive as anynatural disaster yetunderinsurance in this area isparticularly high. This willsoon be the new world orderin threats to businesses andgovernments all over theworld.

Greater resilience is key fordeveloping countries likeIndia to build businessconfidence which will thenstimulate economic growth.To address theunderinsurance issue in India,our industry must do more tofacilitate meaningfulpartnerships with keystakeholders such as thegovernment. There is no onegroup that can solve thisproblem. Policymakers,business leaders,communities and insurersmust work together andidentify where insurance gapsexist and accelerate insuranceuptake and understanding.Only then can we make anyprogress in trying to closethem.

The report also highlights asplit between thedeveloping and developedworld. A staggering 98% orsome USD 160 bn of thetotal underinsurance gapcomes from developingcountries. Besides India, therest of Asia also featuressignificantly among theunderinsured. This mightbe because the region ismost exposed to risk fromnatural disasters comparedto anywhere else in theworld w

Views expressed in thispaper are author’s

personal only and not ofthe affiliatingorganisations

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Introduction

The life reinsurance market inIndia has demonstratedstrong expansion over thepast decade. The market sizeof life reinsurance in Indiatoday exceeds INR 2,100crore, representing anannualized expansion rate ofalmost 21% over the pastdecade i.e. between FY 2007-08 and FY 2017-18. (Source:

Public Disclosures)

This growth has beensupported by the growth ofthe direct life insurancemarket and by the increase insums assured for newbusiness, especially forindividual life. The chart

below indicates the increasingfocus on protection productsin recent years, as exhibitedby expansion in individualnew business sums assured.

In addition, life insurers havebeen expanding the scope ofprotection coverage frompure mortality, to includemorbidity and health risks,and this trend looks set tocontinue. Reinsurers supportthe industry not only byproviding capacity, but alsoproviding international bestpractices, for example, inframing product boundaries,definitions and exclusions forthese products. Given therapidly changing productlandscape, the need for life

reinsurance supportcontinues to increase.

Regulatory aspects

Until 2013, life insurers wereable to independently decideon the levels and forms oftheir reinsurancearrangements. The InsuranceRegulatory and DevelopmentAuthority (Life Insurance –Reinsurance) Regulations,2013 encouraged insurers toset minimum retention limitsbased on the age of the insurerand year in which the risk wasintroduced. This led to asignificant change to thereinsurance arrangements,requiring insurers to retainmost of the risk coming fromthe lower sums assuredlevels.

The Draft InsuranceRegulatory DevelopmentAuthority of India(Reinsurance) Regulations,2018 seeks to have thereinsurance arrangement tobe decided by the lifeinsurers, subject to aminimum sum at risk beingretained on an overallportfolio level. The draft also

Issue Focus

Relevance of Life Reinsurance in currentIndian context

Sunayana MahansariaChief Marketing Actuary – Life andHealth, Munich Re India Branch

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10 Reinsurance

contains provisions allowingfor alternate risk transferarrangements on a case tocase basis.

If finalized in the currentform, the new reinsuranceregulations will bring severaladvantages to life insurers.

• Life insurers can bring innew products whilesharing higher amountsof those risks which theyare still not comfortablewith, given lack ofexperience in thoseareas.

• Product lines such asmicro-insurance ormorbidity products, canbe written by insurersin higher volumes withadequate reinsurancesupport at the backend.

• Reinsurers will also bemore incentivized tobring in newer conceptsgiven that theregulations, in theproposed form, removesthe requirement for lifeinsurers to follow anorder of preference ofcessions.

Benefits offered byreinsurers to lifeinsurers

In India, reinsurers offer awide spectrum of riskcoverage and technicalservices to direct life insurers.In this context, it is importantto recognize that the valuebrought in by reinsurers isnot purely transactional(offering risk pricing) but infact covers a wide spectrumof technical value added

services, which can aid lifeinsurers to better managetheir core business andprocesses. The benefitsoffered by a full servicereinsurer can therefore bedivided into two classes:Direct benefits and Valueadded services. Let us have adetailed look at howreinsurers are relevant in therapidly evolving product andrisk landscape of lifeinsurance:

Direct benefits:

1) With rising incomes,nuclearisation of families andconsequent increase inpersonal liabilities, theaverage sums assured sold interm insurance products haverisen, at several life insurers,to INR 10 million.Reinsurance capacity isavailable to absorb these highsums assured and beyond, sothat insurers can write largervolumes of policies, whileminimizing the volatilityimpact to their financialstatements.

2) Insurers can offer awide variety of morbiditycovers which protect againstvarious critical illnesses andalso niche covers protectingagainst cancer, cardiacdiseases at various severitylevels. This is made possibleas reinsurers share in therisks over the term of thepolicies. In addition, insurerscan use reinsurance riskpremium rates as a basis forsetting their own morbidityassumptions.

3) With changes to thereinsurance regulations, it is

likely that reinsurers will beable to assist direct lifeinsurers to optimize theircapital position and reducethe strain of writing newbusiness through offering asuite of capital solutions.

4) Reinsurers offercapacity to cover massmarket insurance schemes,enabling governmentpromoted insurance schemesto be successful in achievingdeeper insurance penetrationwithin India.

5) Insurers relatively lessexperienced in writing micro-insurance schemes can offerthis coverage with support ofreinsurers uniformly sharingin the risks.

Values added services:

1) Over the past decade,a number of new products inthe market have beenbrought in by reinsurers asvalue added services tosupport their clients.Reinsurers bring in not justthe design aspects but alsoshare the internationalexperiences of how certainproducts have fared in othersimilar markets around theglobe. Insurers can leveragethis information to makeinformed decisions whenintroducing these concepts inthe Indian market. In thecurrent context of risingawareness of protection,reinsurers assist in settingoptimal technical definitionsand claims processes whichare essential for successfulproduct risk management.

2) Reinsurers share best

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practices with their clients ona range of aspects: it iscommon for reinsurers toconduct trainings for clientson technical aspects such asunderwriting and claimsmanagement, and to holdforums where topics ofcommon interest can bediscussed and debated.Besides conducting their ownevents, reinsurers regularlycontribute to industry eventsby having their experts speakon global developments orlocal issues of relevance.

3) The widespread fraudin the industry (mainly onterm insurance products) hasimpacted the entire lifeindustry in India over thepast five years and is onlynow showing signs of abating.Reinsurers have workedalongside insurers to stemfrauds, offering a range of

predictive analytics servicesto help identify malpracticesand deal with the root causeof fraudulent claims. Severalinsurers have reported animprovement in theexperience afterincorporating these toolswithin their risk managementframework.

4) Reinsurers have theadvantage of being anindependent neutral thirdparty which is tuned into theissues facing the industry andhas the technical capabilitiesto deal with these aspects.Reinsurers therefore shareinformation on suspiciousclaims, prepare industry wideexperience studies, and helpin setting of standardizeddefinitions for the industry.

5) Reinsurers can bring inservice providers with whomthey have global tie ups, to

offer value added servicessuch as medical secondopinions or third partyadministration. Theseservices reach the endcustomers of direct lifeinsurers at a nominal cost onaccount of the larger volumessourced through the globaloffices of reinsurers.

Many international reinsurershave set up offices in India, tobe able to better serve theIndian market, with themixture of local marketknowledge and internationalbest practices being sharedwith their clients.

The life insurance industry inIndia can and will continue togrow, and by forging ahealthy relationship withreinsurers it will achieve ahigher reach while ensuring arobust risk managementframework.

The article was

written prior to the

notification of IRDAI

( R e i n s u r a n c e )

Regulations, 2018.

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12 Reinsurance

Issue Focus

P KalyaniResearch Scholar, Department ofManagement, Osmania University,Hyderabad

ICSSR Research Fellow at Instituteof Public Enterprise (IPE),Hyderabad

Factors influencing the Reinsurancedemand in India: A study

Prof. S SreenivasaMurthyDean and Chairman -PlacementsInstitute of Public Enterprise,Hyderabad

Introduction:In the current competitiveinsurance scenario, thesuccessful survival of aninsurance company dependsnot only on adequate pricingof its products to cover costsbut also on capitalmanagement and riskmanagement. Reinsurance isone such valuable andmultifaceted product whichon one hand helps aninsurance company toeffectively hedge against itsbusiness risks and on theother hand enhances itscapital position. The“reinsurance demand” by aninsurance company isprimarily motivated by itsrisk bearing ability. As therisk bearing ability of differentinsurance companies dependson its firm specificcharacteristics, the“Reinsurance demand” bythese companies should alsovary according to thesecharacteristics. Therefore, inthis study an attempt wasmade to identify the firmspecific factors influencing the

“Reinsurance demand” bynon-life insurance companiesin India.Current Scenario ofReinsurance industry inIndia:The Indian reinsurancemarket is witnessing dynamicchanges with theliberalisation of reinsuranceregulations. The Regulatorseems to have followed the“domesticating Reinsurance”model to arrest capital flightand to mitigate other risks.Establishment of ForeignReinsurance Branches (FRBs)and the setting up of IIOs inGIFT IFSC Gujarat is a newparadigm which will play acrucial role in making India aglobal reinsurance hub. GICRe is the National Reinsurerof India and has enjoyedmonopoly in the IndianReinsurance Market till theyear 2016.The reinsurance market inIndia is currently wortharound INR 300,000 million(US$ 47 billion) annually andis estimated to grow to INR

700,000 million by 2022.(Alice Vaidyan (2018)).Further the reinsurers inIndia have a domestic

Current Scenario ofReinsurance industry inIndia:The Indian reinsurancemarket is witnessingdynamic changes with theliberalisation of reinsuranceregulations. The Regulatorseems to have followed the“ d o m e s t i c a t i n gReinsurance” model toarrest capital flight and tomitigate other risks.Establishment of ForeignReinsurance Branches(FRBs) and the setting up ofIIOs in GIFT IFSC Gujaratis a new paradigm which willplay a crucial role in makingIndia a global reinsurancehub. GIC Re is the NationalReinsurer of India and hasenjoyed monopoly in theIndian Reinsurance Markettill the year 2016.w

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(Alice Vaidyan (2018)).Further the reinsurers inIndia have a domesticcustomer base of 58Insurance companiescomprising of 24 Lifeinsurance companies (1 inPublic Sector + 23 in PrivateSector) and 34 Non-Lifeinsurance companies (6 in thePublic Sector + 28 in PrivateSector).Review of Literature andResearch Questions:Various studies related todeterminants of reinsurancedemand have been reviewedand it was found that thoughconsiderable research hasbeen devoted todeterminants of reinsurancedemand, the studies havebeen mostly confined todeveloped insurance markets.Little attention has been paidto the demand analysis ofreinsurance in emergingmarkets. Secondly, it wasobserved that there is nostudy focussing onreinsurance demand usingIndian data. In this context aquestion arises that will thedeterminants of reinsurancedemand be the same in Indiaand if so, will the direction andthe impact of determinants bethe same as found in earlierstudies?Objective of the Study:The objective of the currentstudy is to identify the factorsthat influence theReinsurance Demand in India.Research Methodology:The focus of the study is onthe Reinsurance demand ofNon-life insurance sector inIndia. Out of the 34 Non-life

Insurance companiescurrently operating in India,21 companies (4 from thePublic Sector and 17 from thePrivate Sector) are selectedfor the study, excludingspecialised insurers ECGCand AIC, Seven standalonehealth insurance companiesand the private Generalinsurance companies whichhave not completed at leasttwo years of operation.Initially the sample consistedof 199 observations, but dueto the rolling method used inmeasuring Earnings volatility,20 observations related tolast year of 20 companies and9 observations related to firstyear of nine companies whichhave started their operationsafter 2006-07 are lost. Thefinal sample used for paneldata regression consists of170 observations pertainingto these 21 companies over aperiod of eleven years from2006-07 to 2016-17. Thesample of companies isrepresentative of the non-lifeinsurance sector in India sincethe market share of grosswritten premiums of thesecompanies was more than90% from FY2006-07 toFY2015-16 and 89% inFY2016-17. The data for thesample is collected fromPublic disclosures and Annualreports of the insurancecompanies. A set of eight firmspecific factors related toGeneral insurance companiesin India i.e., Firm Size (FS),Investment Performance(IP), Underwriting Risk (UR),Earnings Volatility (EV), Longtail Business (LTB), PremiumGrowth (PG), Return on

Assets (ROA), Liquidity (LIQ)were taken as Independentvariables and ReinsuranceDemand is taken asDependent Variable. Thechoice of Independentvariables is based onrelevance to the Indianinsurance scenario and alsoavailability of data. Paneldata regression analysis hasbeen chosen to study theimpact of independentvariables on Dependentvariable as the sampleconsists of both cross sectionaland time series data. Thepanel data set is unbalancedas all the sample companieswere not in operation fromFY2006-07 and data forsome companies in someyears was missing. Stata 14.0software was used to run thepanel data regression andobtain the results.Regression Model:The panel data regressionmodel developed for thisstudy is as follows:

RD i t = α i + β1FS it + β2IPi t +β3UR it + β4EV it + β5LTB it +

β6PGit + β7ROAit + β8LIQit+uit

In the above equation,Reinsurance demand isexpressed as sum of intercept(αi), Product of Independentvariables and their respectivecoefficients (β1, …., β8) and theerror term (u it). Thecoefficient of an independentvariable measures the changein dependent variable for aunit change in independentvariables. i and t denotedifferent companies and yearsof the sample.

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Measurement of Variables:Table 1 explains how the Dependent and Independent variables considered for the regressionmodel are measured.

Table 1 –MEASUREMENT OF VARIABLES

Variable Measured ThroughReinsurance Demand (RD) Premium on Reinsurance Ceded / Gross Written

PremiumFirm Size (FS) Natural Logarithm of Total AssetsInvestment Performance (IP) (Net Income from Investments / Total Investment)

X 100Underwriting Risk (UR) Net Claims Incurred / Net Premiums EarnedEarnings Volatility (EV) Natural Logarithm of Standard deviation of Profit

After Tax for three years on a rolling basis duringthe sample period

Long Tail Business (LTB) Technical Reserves / Net PremiumPremium Growth (PG) (Net Premiums Earned in Current year – Net

Premiums Earned in Previous year) / NetPremiums Earned in Previous year

Return on Assets (ROA) Profit After Tax / Total AssetsLiquidity (LIQ) Liquid Assets / LiabilitiesSource: Compiled by Authors’ based on earlier studies

Factors influencing theReinsurance demand inIndia - Data Analysis,Results and Discussion:The data analysis, results anddiscussion related to factorsinfluencing reinsurancedemand in India is presentedbelow:

Descriptive Statisticsrelated to ReinsuranceDemand and Firmspecific factors:Table 2 presents thedescriptive statistics for thedependent and independentvariables used in the study.The mean value of RD is 0.32

which shows that the averagereinsurance ceded by thenon-life insurance companiesacross the panel data set was32% of the gross writtenpremium. The standarddeviation of the dependentvariable RD is 0.22.

Table 2–DESCRIPTIVE STATISTICSVariable N0. of Obs. Mean Standard deviation Min MaxRD 199 0.32 0.22 0.06 2.46FS 199 7.91 1.61 4.55 11.14IP 199 10.15 3.50 5.61 24.66UR 199 0.81 0.65 -2.23 8.75EV 170 3.83 1.41 0.54 7.14LTB 199 0.98 6.46 -89.35 4.23PG 190 2.02 15.59 -31.09 173.61ROA 199 -1.83 9.77 -41.28 22.14LIQ 199 -0.02 11.33 -156.68 20.92Source: Authors’ own compilation based on results obtained through Stata 14.0

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Selection of optimumPanel Data RegressionModel for ReinsuranceDemand:Simple pooled OLSregression, fixed effectsmodel and random effectsmodel are the different paneldata regression modelsgenerally used. The resultsrelated to the different

Pair wise Correlations ofReinsurance Demand &Independent Variablesand VIF Values:The pairwise correlationcoefficients and VIF valuesare mainly calculated to checkthe multicollinearity between

the independent variables. Apairwise correlation of morethan 0.8 and VIF value above10 indicates the presence ofsevere multicollinearitybetween the Independentvariables (Gujarati (2004)).The results (see Table 3)

show that none of thepairwise correlationcoefficients exceed 0.8 andlargest VIF value is 4.39,which indicates that there isno serious problem ofmulticollinearity.

diagnostic tests indicated thatfixed effects model isappropriate. Hence theresults of fixed effects modelare presented and discussedbelow.Results of Fixed EffectsModel:The results of the fixed effectsmodel shows that the “rsquared value” is 0.679 which

TABLE 3 - PAIR WISE CORRELATION COEFFICIENTS RD FS IP UR EV LTB PG ROA LIQ VIF

ValuesRD 1 -FS -0.37 1 3.75IP -0.22 0.43 1 1.40UR -0.18 0.05 0.19 1 4.11EV -0.28 0.77 0.39 0.41 1 2.75LTB -0.25 0.15 0.08 0.21 0.12 1 4.39PG 0.01 -0.18 0.10 0.12 -0.06 0.00 1 1.21ROA -0.10 0.44 -0.03 -0.24 0.18 0.04 -0.37 1 1.94LIQ -0.37 0.04 0.01 0.01 -0.26 -0.12 -0.02 0.07 1 3.40

Source: Authors’ own compilation based on results obtained through Stata 14.0

indicates that 67.9% of thevariation in the reinsurancedemand is explained by theeight independent variablesused in the model. More overthe significant p value of themodel (Prob >F =0.00) showsthat model is fitted well andthe coefficients ofindependent variables are notequal to 0.

FS FS of an insurance Company -0.1144 0.0105 -10.9 0.000 Rejectedhas no influence on its RD

IP IP of an insurance Company -0.0017 0.0033 -0.53 0.600 Acceptedhas no influence on its RD

Table 4 – RESULTS OF THE FIXED EFFECTS MODEL AND ACCEPTANCE/REJECTION OF NULL HYPOTHESIS

RD Null Hypothesis Coefficient StandardError

t -Statistic

P>|t| Acceptance/Rejection

of NullHypothesis

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UR UR of an insurance Company 0.1499 0.0586 2.56 0.012 Rejectedhas no influence on its RD

EV EV of an insurance Company 0.0033 0.0062 0.55 0.583 Acceptedhas no influence on its RD

LTB LTB of an insurance Company -0.0094 0.0021 -4.38 0.000 Rejectedhas no influence on its RD

PG PG of an insurance Company -0.0001 0.0003 -0.18 0.855 Acceptedhas no influence on its RD

ROA ROA of an insurance Company 0.0029 0.0009 3.39 0.001 Rejectedhas no influence on its RD

LIQ LIQ of an insurance Company 0.0025 0.0096 0.26 0.793 Acceptedhas no influence on its RD

CONST. - 1.0993 0.0787 13.97 0.000 -Number of Observations: 170Number of Groups:21R Squared Value: 0.679Prob > F = 0.000Source: Authors’ own compilation based on results obtained through Stata 14.0

Important Findings:1. Out of the eightindependent variables used inthe study it is found that fourvariables namely Firm size,Underwriting risk, Long tailbusiness and Return onassets of an insurancecompany are significantlyinfluencing its Reinsurancedemand.2. Further it is found that outof the statistically significantvariables, Firm size and Longtail business are negativelyrelated to reinsurancedemand and hence it isconcluded that as the firmsize and long tail businessproportion of an insurancecompany increases itsreinsurance demanddecreases. It is also foundthat Underwriting risk andReturn on assets of aninsurance company are

positively related toReinsurance demand.Therefore we can concludethat as the underwriting riskand return on assets of aninsurance companyincreases its reinsurancedemand also increases.3. On the other hand theremaining four variablesnamely Investmentperformance, Earningsvolatility, Premium growthand Liquidity of an insurancecompany do not showstatistically significantinfluence on Reinsurancedemand of an insurancecompany.4. The findings related toFirm size, Long tail businessand Underwriting risk areconsistent with the findings ofAltuntas, Garven and Rauch(2013) and Lee and Lee(2012)

whereas as against thepositive and significant resultsof Return on assets in thisstudy, the results of Adams,Hardwick and Zou (2008)exhibited a negative andsignificant relationship withReinsurance demand. Asagainst a significantrelationship of Investmentperformance and Liquiditywith Reinsurance demand inLee and Lee (2012), aninsignificant relation is foundbetween these variables andReinsurance demand in thisstudy. The insignificantinfluence of EarningsVolatility and PremiumGrowth on reinsurancedemand of an insurancecompany is consistent withthe findings of Adams,Hardwick and Zou (2008) andAltuntas, Garven and Rauch(2013).

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Conclusion:Using unbalanced panel dataset consisting of One Seventyobservations pertaining toTwenty One GeneralInsurance Companies in Indiafor a period of eleven yearsfrom 2006-07 to 2016-17,the current study empiricallyidentified the firm specificfactors of an insurancecompany that influences itsreinsurance demand. Thestudy is limited to availabilityof only aggregate data related



to dependent andindependent variables ofdifferent companies acrossthe sample period and thereis a possibility that the factorsinfluencing reinsurancedemand may vary acrossdifferent lines of insurancebusiness. However, in spite ofthis limitation, this studyprovides some new insights tomanagers of insurancecompanies in understandingthe firm specific factorsinfluencing the reinsurance

demand in the Indian context.It is suggested that the futureresearch in this area caninclude macro-economicvariables and study theirimpact on reinsurancedemand using the Indiandata.

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18 Reinsurance

Issue Focus

N M Behera,Office of the Insurance Ombudsman,Bhubaneshwar.

Reinsurance regulations:a step forward.

1. International Forums keepon insisting for a free world-wide flow of risk throughopen and competitivereinsurance markets. Theyadvocate that any barrier tofree flow would reducecompetition leading toreduced customer choice,higher reinsurance cost,increasing domesticconcentration of risk.

2. In spite of the views takenby the internationalforums, several nationshave enacted laws notcommensurate with theviews taken by theseforums. Most nationsconsider country first so asto fulfil the interests of theirnation. Different countrieshave different interests andpriorities. The priorities arenot static but change fromtime to time andaccordingly thegovernments fix newpriorities through new laws.There are many prominentcountries, which haveimplemented protectionistregulations. USA, Canada,Australia, Argentina, Brazil,Germany, Indonesia,Malaysia, Philippines,

China, South Korea etc. aresome examples of parentingrestrictions. Barriers areimplemented in differentforms in different countrieslike- i. Imposition of

Collateral: USAmandates 100%collateral orlocalisation of assetsfor placement ofreinsurance businesswith non-USAreinsurers (and 50%for Europeanreinsurers). Similarly,Canada and Israel toohave the collateralsystem.

ii. Imposition of RiskCharges: Chinaimposes risk chargesranging from 8.7% to58.8% which is seen tobe harsh for foreignreinsurers.

iii. Fixation of minimumretention: Brazil lawmandates to retainminimum of 50%business within thecountry.

iv. Fixing maximumretrocession byreinsurers: CIMA,Francophone Countries,Argentina etc., havefixed differentmaximum limits that adomestic reinsurer canretrocede to a foreignreinsurer.

v. First Right of Refusal:Brazil and Philippineshave necessitated theinsurers to offer thedomestic reinsurers,without which theinsurers cannot offerto foreign reinsurers.

vi. Order of Preference:Malaysia is anexample whichimplements order of

International Forumskeep on insisting for a freeworld-wide flow of riskthrough open andcompetitive reinsurancemarkets. They advocatethat any barrier to freeflow would reducecompetition leading toreduced customer choice,higher reinsurance cost,increasing domesticconcentration of risk.

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preference. India hasthe similar systemenacted about twoyears ago.

vii. Compulsory minimumcessions: Manycountries includingBrazil, CIMA, Russia,Srilanka etc., havemandated that aminimum percentageof all business orreinsurance businessis to be placed with thenational reinsurer ordomestic reinsurers.

viii.First exhaust thedomestic capacity:Some countries likeNigeria haveregulations mandatinginsurers to place withforeign reinsurers onlyafter the domesticcapacity is exhausted.

ix. No face to facediscussion: There aredraconian laws incountries likeGermany and SouthKorea which ban faceto face discussion bydomestic insurers withforeign reinsurers.

x. Need of physical office:Countries likeArgentina do not allowcross borderreinsurers toparticipate unless theyhave their offices intheir countries.

xi. Reinsurance credit:Many countries eitherdo not grant credit orgrant a lesser creditfor reinsurance placedwith foreignreinsurers or those inn o n - e q u i v a l e n t

jurisdictions. Portugal isan example.

xii. Law on denyingr e i n s u r a n c eplacements with crossborder reinsurers oncertain lines ofbusiness: Francophonecountries do not allowcertain lines of businessfor placement outside.

xiii.There are several otherrestrictions in otherforms imposed byseveral other countries.

3. The fact remains that theinternational reforms areput on a back seat, when onediscusses a country’sinterest. Had that not beenthe case, perhaps we wouldnot have seen therestrictions from countrieslike USA, Germany, Russia,China etc. Indian entitieshave to struggle a lot to geta pie from such foreigncountries. It is not easysailing for Indian companiesto venture into anothercountry for business. Incontrast, India has laid redcarpet for all those who triedto create barriers for it.India is an emerging nation

and is different from manycountries. More domesticchanges are needed toprotect its interest and tocompete at theinternational level. Anyemerging nation needs todesign its laws verycarefully. India neverimposed any restrictionover a foreign reinsurer sofar.

4. The regulation on Order ofPreference is a wellcalculated strategy toachieve the dream ofmaking India a reinsurancehub. On one hand it catersto its own interests and onthe other it respectsinternational institutions.Order of preference doesnot restrict foreignreinsurers fromparticipating in Indianbusiness. In spite of theorder of preference, today,the business going outsideIndia is equal to one thirdof its total reinsurancebusiness. Unlike manyother countries mandatinghigher ratings, Indiaaccepts BBB (of S&P, orequivalent rating of otherrating agencies) rating. Itsimply says that the foreignreinsurers should be from aDTAA country and shouldhave the minimumsolvency margin asrequired by their homecountries. India is more anopen market in the sensethat it has not imposed anycollateral or risk charges sofar. India considersretention of whole thingwithin the country as a riskyaffair. Therefore, it allowsinternational players also to

Prior to Insurance LawAmendment Act (2015),India had only GIC Re as theIndian Reinsurer. Thedirect insurers were mostlydependent on the foreignreinsurers. Placement withGIC Re was limited. Now,India has allowed foreignreinsurers to open theirbranches in the country.

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participate for betterdiversification.

5. Prior to Insurance LawAmendment Act (2015),India had only GIC Re asthe Indian Reinsurer. Thedirect insurers were mostlydependent on the foreignreinsurers. Placement withGIC Re was limited. Now,India has allowed foreignreinsurers to open theirbranches in the country.The scope and choice, forplacement by Indianinsurers writing directinsurance business, haveexpanded as Indiaregistered several topglobal reinsurers during thelast couple of years. TheIndian insurers are nowable to cede to foreignreinsurers through theirbranches next to their door-steps. It is expected thatmore such foreign playerswould open their shops inIndia. This would helpincrease capacity andretention within thecountry along with aiding inthe increase of foreignexchange, building oftechnical capability andprovision of employment.

6. The Foreign Reinsurers’Branches (FRBs) and otherIndian reinsurers/ insurersare directly regulated byIRDAI, whereas, the CrossBorder Reinsurers (CBRs)are not. The FRBsretrocede to their parentcompanies. The FRBs arebound to retain minimum50% of their domesticbusiness, in India.However, there is nomandate for CRBs tomaintain any retention inIndia of the business placed

with them. Hence,retention in India for CBRsis out of question.Therefore, placing businesswith IRDAI regulatedentities is always safer thanplacing with CBRs.

7. As far as diversification ofrisk is concerned, India hasgot about ten top highlyrated and established globalplayers. IRDAI has grantedregistration to another newIndian Reinsurer. TheInternational FinancialCentre (IFSC-SEZ) inGujarat is emerging. Asthese FRBs and IFSCoffices are allowed toretrocede outside up to50% and 90% respectively;India has targeted tosufficiently diversify therisk in the internationalarena. Through the order ofpreference, thediversification has gonewider not only among manyon-site players but alsowith global players throughdirect reinsuranceplacements andretrocession arrangements.

8. The CBRs are better placedto provide quotes at a lowerrate than the domesticplayers. The reinsurers inIndia need to comply withthe Indian regulatorynorms (like maintainingcapital, solvency,Investment, actuarial,corporate governance etc).The cross border reinsurersare not subject to Indianlaws or the Indian taxregime. They enjoy taxadvantages as compared tothe Indian players. It is afact that Indian Companiesare comparatively in adisadvantageous position

than the CBRs. Therefore,there is an argument thatthe domestic players shouldbe incentivised. Absence ofincentives to on site entitiesin India; may give room toforeign reinsurers to thinktwice before they proposeto open their offices inIndia. They can play safefrom outside byparticipating from theirhome countries thanopening any shop in India.This was never theintention of India.

9. As far as freedom andcompetition is concerned,the Order of Preference hasgiven freedom to thecedants (customer) to seekquotations from anyreinsurer it likes includingthe CBRs. This encouragesfree competition and alsohelps the cedants todiscover price. Like manyother countries, Indianregulations provide for anorder of preference, whichprefers the reinsurers onthe Indian soil first and thenthe foreign reinsurers. Itencourages to utilise thedomestic capacity first andthen to choose the foreign

Prior to Insurance LawAmendment Act (2015),India had only GIC Re asthe Indian Reinsurer. Thedirect insurers were mostlydependent on the foreignreinsurers. Placement withGIC Re was limited. Now,India has allowed foreignreinsurers to open theirbranches in the country.

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reinsurers. The law isdesigned in such a mannerthat it not only helps theIndian companies toincrease capacity but alsoensures the spread of risksacross the globe.

10. Some argue that theorder of preference limitsinnovation. The factremains that even afterintroduction of Order ofPreference in 2016; themarket has brought inmany innovativeproducts without anyproblem. Rather, ithelped inflow ofknowledge and technicalexpertise.

11. The experts view that theregulations offer morebalanced, flexible andliberal regime than thosein many other countries.Sometimes, a minimumlevel of restriction worksin favour as a blessing indisguise. It is a win-winsituation for allstakeholders. One maynot constrain with shortterm results but shouldhave patience to see along term outcome.

12. It is on record that thecountries which havebuilt up their markets arenot an overnightoutcome. They aresuccessful either becausethey had imposedrestrictions earlier or arestill practicing tradebarriers. It is seen thatmany could develop theirreinsurance markets andhubs because initiallythey put several

restrictions for the CBRsand provided lot ofincentives to the on-shore players. Thecountries gradually triedto remove suchrestrictions in a phasedmanner, once theyreached the point of selfsufficiency by becominginternational reinsurancemarkets. Singapore is onesuch example. Initially ithad restricted the foreignreinsurers by way ofcollaterals etc. As a result,the foreign reinsurersgradually opened theiroffices in Singaporegained the advantage ofbeing admitted andpreferred reinsurers.Gradually, when most ofthe players operatedfrom Singapore, thecountry became self-sufficient through a huband finally dispensed withthe restrictions. Today,Singapore is aninternationally renownedreinsurance market.

13. While favouring order ofpreference, the expertsunderline the fact thatmany stakeholdersincluding theintermediaries primarilyoperate to promote theirself interests. Sometimes,the interest of aparticular stakeholdermay contradict with thatof another. It is verydifficult to have in place aregulation that satisfiesall the stakeholdersequally. However, theregulations should keep

the larger interest of theindustry and the countryin mind. At this juncture,when India invitesforeign players to opentheir offices, order ofpreference works likeblessing in disguise for abrighter future.

14. The other importantaspect beyond theregulatory arena is tohave a favourable taxregime at least at parwith those in othercountries. This boosts themarket without losing theincome by the process ofeconomies of scale. Theg o v e r n m e n t ’ sintervention is necessarytowards this.

15. To conclude, it is believedthat the order ofpreference has beenworking well. It hasattracted more foreignplayers to open theiroffices in India. By theprocess, it will helpincrease in capital andcapacity, growth inforeign exchange andnational income, assuresecurity anddiversification andgenerate employmentand technical expertise.Order of preferenceshould continue untilIndia achieves its goal ofbecoming a reinsurancehub.



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22 Reinsurance

Issue Focus

Reinsurance and Indianreinsurance market

Mr. Riddhi Biswas

Global Insurance Brokers Pvt. Ltd.

Today, there are manyreinsurance companies ofvaried size, operatingacross various countriesand regions. Below is the listof top Twenty reinsurers aspublished by the ratingagency A.M BEST. The topslots are occupied by theage old Munich re andSwiss Re followed byvarious other markets.Another interesting fact isthat the top ten players arewriting over 70% of thetotal life and non-lifeunaffiliated grossreinsurance premiums andit shows that the marketdominance is beingcontinued by a handful ofplayers.

Back to 26th November,2008, the fateful and jinxedday when terror struckMumbai and the ordealensued, a pall of gloomdescended in the wake of themassive massacre of humanlives and properties. Most ofus watched it with a sense of

w

horror and compassion but acluster of people andcompany viewed it with adifferent angle in addition tolooking at with a commonthread of commiserationenveloping each of us. Theirmain contemplation was howto support the affected andbring the normal life back.They came forward with theircoffer to offer help. These arenone but insurers andreinsurers and theirunderwriters and claimsteam. Sitting across miles afarwhether in London, Dubai orSingapore, these typicalpeople looked through thesame lens of reinsurance andfulfilled their contractualobligation. The examples arenot too far to seek- whetherit is the Japan’s devastatingearthquake or Thailand floodsor missing of Malaysianairlines, the ripple effects ofwhich touch the shores acrossthe various frontiers and thusthey extend stability anddiversification to the insurers.The significance ofreinsurance is therefore suigeneris and reinsurers aretruly a ‘friend in need’ and an

ally in apocalypse.

It is believed that reinsurancetook its birth when CologneRe, which wrote the firstreinsurance treaties in 1852,one decade after the GreatFire of Hamburg. It is thenmerged and became a part ofGen Re (a subsidiary ofBerkshire Hathaway) in the1990s. In 1863 and in 1880,The Swiss ReinsuranceCompany was established inZurich, and Munich Re inGermany respectively.

Today, there are manyreinsurance companies ofvaried size, operating acrossvarious countries and regions.Below is the list of top 20reinsurers as published by therating agency A.M BEST. Thetop slots are occupied by theage old Munich re and SwissRe followed by various othermarkets. Another interestingfact is that the top ten playersare writing over 70% of thetotal life and non-lifeunaffiliated gross reinsurancepremiums and it shows thatthe market dominance isbeing continued by a handfulof players.

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1 Munich Reinsurance Company $37,821 80.50% 33.50% 114.00%

2 Swiss Re Ltd. $34,775 82.30% 33.10% 115.40%

3 Berkshire Hathaway Inc. $22,740 N/A N/A 116.40%

4 Hannover Rück S.E. $21,314 71.30% 27.80% 99.10%

5 SCOR S.E. $17,718 71.00% 32.70% 103.70%

6 Lloyd’s $14,250 83.80% 33.30% 117.20%

7 Reinsurance Group of America Inc. $10,704 N/A N/A N/A

8 China Reinsurance (Group) Corporation $10,435 62.60% 41.30% 103.90%

9 Great West Lifeco $7,924 N/A N/A N/A

10 Korean Reinsurance Company $6,775 77.70% 18.70% 96.40%

11 General Insurance Corporation of India $6,497 86.30% 17.50% 103.80%

12 PartnerRe Ltd. $5,588 69.80% 29.50% 99.30%

13 Everest Re Group Ltd. $5,115 76.60% 26.50% 103.10%

14 XL Group Ltd. $4,916 79.90% 31.50% 111.30%

15 Transatlantic Holdings, Inc. $4,211 73.10% 33.80% 106.90%

16 MS&AD Insurance Group Holdings, Inc. $3,385 N/A N/A N/A

17 R+V Versicherung AG $3,071 73.80% 25.30% 99.10%

18 MAPFRE RE, Compania de Reaseguros S.A.11 $2,812 73.60% 23.20% 96.80%

19 Renaissance Re Holdings Ltd. $2,798 108.40% 29.60% 137.90%

20 The Toa Reinsurance Company, Limited $2,505 70.10% 26.30% 96.40%

Ranking of Reinsurers as per 2017 data:

Ran

kin

g Name of theReinsurance Company

Gross Life &Non-Life

ReinsurancePremiumsWritten(in

USD)

LossRatios

(3)

ExpenseRatios

(3)

CombinedRatios

(3)

Source: A.M. Best

Indian Reinsurancemarket:Indian reinsurance is rapidlybecoming a force to bereckoned with. It is growingat a spectacular CAGR of closeto 20% in the last five yearsin tandem with directinsurance. In 2016-17, it had

clocked total RI premium $4.574 billion as depicted inexhibit 2 in detail. Few yearsback, it was only nationalcarrier GIC Re present inIndia. But once regulationsallowed the entry of foreignplayers in 2015, ten foreignreinsurers have opened their

shops here along with GIC Re.GIC Re has also become oneamongst the top elevenplayers in the world. Therecent boost in insurance andreinsurance in India is largelyattributed to the meteoric riseof crop insurance.

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Exhibit 3: Data source: IRDAI website

Exhibit 2Data source: IRDAI Annual Report

Challenges of reinsurers:The reinsurance industryclose to USD 600 billion isbearing the brunt of manychallenges. The most teethingamong them are the following:• Many M&As• Downward pressure on

profitability due to lowcession rate, highcommission, etc

• Availability of alternativecapital

• Increasing bargainingpower of the insurer anduptick in the retention bythem

• Local regulationsWhen insurance companiesmerge into fewer while in thesame country or become apart of global insurancepartner, total reinsuranceorder automatically comesdown. To rub salt on thewound, if it is a part of globalbig insurance group, it nolonger needs to doreinsurance as its risk can beoffset with some unrelatedpolicies written in a bouquetof other policies. Moreover,technological amelioration has

also facilitatedin streamliningthis operation.Recent such insurancecompanies in India areHDFC-ERGO and L&TInsurance in generalsegment. In a very recentmove in Sri Lanka, Allianzlocal company and anothertop five player JanashakthiInsurance has beenamalgamated by anacquisition by the Allianzgroup. And these M&Aactivities are trenchant acrossgeographies, thus leading toless reinsurancerequirements.Due to the intensecompetition, the net RI rateis becoming abysmally low.This is either making thereinsurer averse to a proposalor taking much less share.Today, in India the fire policyrate is so low that insurancecompanies survive by Nat Catpremium. This is adverselyaffecting their overall treatyresults. In the exhibit also, itis shown that most companies’combined ratio is crossing100% - a matter of concern forthe players to sustain their

business model.A well-known regionalreinsurer Trust re isdowngraded to B++ by A.M.BEST due to its financialstatements. This has raisedsome red flags on the risksbeing taken by the reinsurer.Another new set ofcompetition has emerged witha nom de plume ‘ART’.Catastrophe bond is one ofthem. Many institutionalinvestors have now foundfavour through anotheralternative route ofinvestment via ‘Cat bond’.Issuance is gaining ground inpast years with investorsbetting on an asset class whichhas less to do with marketfluctuations and offers anaverage annual yield of 7%. Asper Aon Securities, the totalsize has touched a new levelhigh of $ 30 billion in the firsthalf of this year. Insurancecompanies thus evadereinsurance corridor totransfer their risk. The JVbetween BlackRock, an assetmanager, and ACE as an

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insurer, is a grim reminder ofqueering the pitch ofreinsurers’ fortune.Globally, retention limit is alsobroadened the result of whichis the less capacity beingsought. Just as an examplewhen D&O was firstintroduced to Indian market,the local market used to behamstrung by capacityconstraint and when it comesto financial institutions’ D&Opolicy, it would be egregious.However today it has made atectonic shift and not onlydoes India provide capacitybut terms are also verycompetitive that reinsuranceplayers do not seem to beinterested to support theprimary markets.An adage runs by – ‘whenremedy turns out to be worsethan a malady’. It assumesmost significance whenregulations try to lay down aset of regulations to protect orsafeguard the local interest.This, in turn, runs counter toproliferation of reinsurance.Moreover, local players aremore familiar with regulatoryhassles which necessitatethem to control the risks ontheir books. A case in pointcould be taxation treatyamong countries or localinsurance laws on retentionpolicy of every risk, etc.Challenges of India’sambition to be areinsurance hub:With the entry of top notchreinsurers and government’sambitious plan to make Indiaa reinsurance centre ofgravity, it’s time to shed somelight on it. In the currentformat and status quo

maintained by the foreignreinsurers, it may be achimera to become a globalname as a reinsurance tradecorridor.A snapshot of reinsurancebusiness in India is as follows:• Out of twelve players,

only GIC Re books asubstantial 40-45% ofoverseas premium

• Foreign players hardlywrite business outside ofIndia and if they write, itis limited to Indian sub-continent at smidgen.

• Their bizarre take offoreign business share ispredominantly routedthrough retrocessionwhere it originates inIndia as depicted inexhibit.

If the foreign reinsurerscontinue to maintain theirstand and it is widelyconceived that they will do so,it is difficult to move towardscountry’s reverie-journeywith reinsurance.Need of the hour• Let another additional

10-15 % obligatorycession go to foreignplayers except motor

• It will attract otherreinsurers to put shopshere

• Let stipulations mandate

that foreign reinsurersbook some businessoutside of the country asa percentage of totalbusiness written

The role of reinsurance isprimarily construed as acapital provider. However acloser look shows that its rolegoes deeper than this. It takesalong with it requiredexpertise and technology towrite a risk. It spawnsinnovation, new idea and a lotmore to manage a peril. Whencyber liability is just peepingout from its nestle in India andperceived to be a complexproposition, globalreinsurance players lead theway. It puts forth not onlysupport but brings otherstakeholders who wield apivotal role in managing it. Itmakes the Indian marketacquainted with not only theimportance of an experiencedunderwriter but that of acyber risk manager likeNorton, IT manager like IBMand cyber extortion advisorlike NYA in equal poise.Indisputably, reinsurancesmoothens insuranceindustry by acting as a shockabsorber and always acts as avital cog in the wheel of thesector, whenever andwherever required. However,it is not a crystal ball nor achampion of act of sorcery.

Exhibit: 4

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Innovative players willcontinue to show supremacyby summoning up theircourage to roll a rock up the

hill and showcase agility andspeed across risk analysis,underwriting and capitaldispensation to primary

References:

• By Riddhi Biswas, January – March 2013, ‘The Insurance Journal’ in the InsuranceInstitute of India, ‘Insurance Distribution: Challenges and prospects’

• By Riddhi Biswas, April – June 2013, ‘The Insurance Journal’ in the Insurance Instituteof India, ‘Innovations in Insurance’

• By Ari Chester,, Sylvain Johansson, et al, September, 2017, Mckinsey: ‘ Globalreinsurance: Fit for the future’ retrieved October 27, 2018, from https://www.mckinsey.com/industries/financial-services/our-insights/global-reinsurance-fit-for-the-future

• By Brian C. Schneider, June 27, 2018, Insurance Journal: ‘What’s Ahead for ReinsuranceIndustry in 2018: Fitch, retrieved October 27, 2018, from https://www.insurancejournal.com/news/national/2018/06/27/493234.htm

• By Oliver Ralph, Insurance Correspondent, September 7, 2018, The Financial Times:‘Global catastrophe bond market size climbs to a record $30bn’ retrieved October 27,2018 from https://www.ft.com/content/d62827b2-b1e0-11e8-99ca-68cf89602132

• By William Wilkes, February 19, 2018, The Wall Street Journal: ‘Reinsurers Hit byCatastrophe Losses, Rising Competition’ retrieved October 27, 2018, from https://www.wsj.com/articles/reinsurers-hit-by-catastrophe-losses-rising-competition-1519049090

• May 30th 2015, The Economist: ‘Reinsurance- Compacts of god’, retrieved October 21,2018, from https://www.economist.com/finance-and-economics/2015/05/30/compacts-of-god?zid=295&ah=0bca374e65f2354d553956ea65f756e0

• The Economic times: ‘Definition of ‘Reinsurance’ retrieved October 27, 2018, from https://economictimes.indiatimes.com/definition/reinsurance

• Reinsurance news: ’Top 50 Global Reinsurance Groups’ retrieved October 24, 2018 fromhttps://www.reinsurancene.ws/top-50-reinsurance-groups/

insurers to facilitate thenavigation of unexploredfields.

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Issue FocusReinsurance: The Backbone of Crop

Insurance

Ajay SinghalDeputy General ManagerAgriculture Insurance Company of IndiaLtd.

Background:The importance of agriculturein India needs nointroduction. About 58 % ofIndia’s population is engagedin agriculture. It contributesabout 16% of Gross DomesticProduct (GDP) of India. Morethan 80% farmers are smalland marginal (having lessthan 2 ha of land). Most of theagriculture area is rain fed(60%) and only 40% land isirrigated. Agriculture, in fact,is the most risky enterprise inIndia as it is exposed tosystematic/ catastrophicrisks which are high in bothfrequency and volume.Considering this, cropinsurance has always been animportant tool for riskmitigation. Although variouscrop insurance schemes havebeen operating in India since1985, most of them wereimplemented onadministered platform whereGovernment wascontributing if the claimswere exceeding the premiumamount. The sole agency forimplementing these schemeshave been GIC/ AIC.However, from Kharif 2016,

the Government of India hasintroduced market drivenscheme, namely, PradhanMantri Fasal Bima Yojana(PMFBY) which is purely onactuarial/ commercial basisand 18 companies (including5 Government companies)have been empanelled toimplement the same.Crop Insurance Cycle:Unlike any other line ofinsurance, Crop Insurance isa multi-stakeholder schemewhere Central Government,State Government, Bankers,

Insurance Companies,Reinsurance Companies andFarmers are the mainstakeholders.There are 5 main phases inthe insurance cycle whichrepeats every croppingseason. All the stakeholdersare involved in the cycle. TheBanks and Government act asfacilitators in the process. Thecyclical flow diagram of theseasonal insurance cyclewhich keeps repeating everycrop season is as under:

Fig 1: Insurance Cycle under PMFBY Scheme

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28 Reinsurance

PMFBY impact on CropInsurance in India:The Gross Premium underCrop Insurance has multipliedto four times in the very firstyear of introduction of

PMFBY (from Rs. 5500crore in 2015-16 to Rs.22000 crore in 2016-17).The premium in 2017-18 isaround Rs. 25000 crore andlikely to be Rs. 28000 crore

Need of Reinsuranceunder Crop InsuranceAs mentioned earlier, the risksize under PMFBY hasincreased manifold andtherefore the need ofreinsurance is obvious forInsurance Companies toaccept this line of businessconsidering theirunderwriting capacity andsolvency margin. Theselective nature ofparticipation from riskier arealeads to higher risk exposure.Crop Insurance being aseasonal business, thevariation in ultimate loss ratiois also very high on annualbasis and there is delay in

receipt of upfront subsidyfrom Government. There ishardly any gap in receipt ofFunds (Premium Subsidies)and Claims payments. Henceno corpus and very lowinvestment income isgenerated here unlike otherlines of insurance. Therefore,to be able to underwrite morebusiness, to deal with thesystemic risk and bringdiversification andstabilization, reinsurancerequirement is more in cropinsurance than any other lineof insurance.It is pertinent to mention thatthe extent of reinsurance ishighest under PMFBY where

insurance companies cedeabout 75% of risk underQuota Share treaties and alsobuy Stop Loss treaties fortheir net retention of about25%. Apart from this, theFacultative Reinsurance isalso taken by some companiesfor gaps in their normalreinsurance treaties. Thismakes Crop Insurance asnumber one line of Insuranceas far as reinsurance Cessionsare concerned, not only inIndia but also in the world.The comparison of cropInsurance/ reinsurancepremium vis-a-vis Non-LifeInsurance in India is as under:

in 2018-19. India is atnumber three in the worldafter USA and China in termsof Crop Insurance DirectPremium.

Table 1: Premium (USD million)Global Agriculture Premium (USD million) 26300Premium (USD million) USA China IndiaGross Premium 12000 7900 3600exchange value taken as USD 1 = INR 70

1 Gross Direct Premium (India) Rs. 1.5 lakh Crore Rs. 25000 Crore 17%2 Reinsurance Premium Rs. 38000 crore Rs. 21000 Crore 55%

Percentage(%)C=B/A

Table 2: RI Cessions

S.No. 2017-18 All lines of Business(Non-Life)(A)

CropInsurance(B)

From above, it can be seenthat reinsurance is playingthe most vital role underPMFBY and without it theinsurance Companies wouldnot have been able tounderwrite this volume ofbusiness.

How Crop Reinsuranceworks in IndiaAs per Operational Guidelinesof PMFBY, the insurancecompanies are fullyresponsible for claims and tomake appropriatereinsurance arrangements.The Regulations/Instructions

of Indian Regulator (IRDAI)are also to be followed forreinsurance Placements. TheInsurance Companies keepabout 20-25% net Retentionand cede about 75% to 80%into Quota share(Proportional) treaties andalso buy Stop Loss Treaty

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(Non-Proportional) for theirNet Retention. The IndianCrop reinsurance is led byGIC Re (National Reinsurer)who receive around 50% of

the Crop reinsurancepremium and the balance isplaced with Foreignreinsurers who have set upbranches in India and Cross

Border reinsures worldwide.GIC Re is also protecting theircrop Inward business throughStop Loss Retrocession withinternational reinsurers.

Agriculture Insurance/ Reinsurance Models Worldwide

1. United States ofAmerica (USA)Agriculture Insuranceproduct, namely Multi-PerilCrop Insurance (MPCI) in theUSA is administered by aGovernment Body called theFederal Crop InsuranceCorporation (FCIC). TheMPCI scheme is heavilysubsidized by the governmentthrough FCIC. The FCIC isalso responsible for thesetting of the crop insurancerates which are on an actuarialbasis. The distribution of theMPCI product is donethrough 18 ‘AgriculturalInsurance Providers’ (AIPs)who compete on service as theprices are set by the FCIC.About 96% of all cropinsurance in the USA is MPCI.The remaining 4% of cropinsurance business in the USAis Crop Hail (CH) which is notsubsidized and with nogovernment involvement init. Unlike MPCI, Hail productis competed for both priceand service by the cropinsurance companies (AIPs).On behalf of FCIC, the RiskManagement Agency (RMA)was created in 1996 tooversee the crop insuranceprogram and to do thenecessary research and

development to produce newand innovative insuranceproducts. RMA also developseducational programming tohelp farmers learn about andimplement market based riskmanagement techniques. TheRMA works with privatesector Approved InsuranceProviders (AIPs) to providethe public-privatepartnership (PPP) that makecrop insurance widelyavailable.The Insurance companies arereinsured, pretty muchexclusively, on a Stop Lossbasis. US Government also

participates in thereinsurance of the CropInsurance program throughSpecial ReinsuranceArrangement (SRA), which isalso managed by RMA onbehalf of the government. Theinsurance company bears theportion of the risk of loss upto a certain point after whichit is covered by its StandardReinsurance Agreement(SRA) with the government.There is some Quota Sharebut most of the insurancecompanies are well enoughcapitalized so as not to requireit from a capital managementperspective.

Federal Crop Insurance Program

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30 Reinsurance

2. CanadaAs in the USA, Multi Peril CropInsurance (MPCI) in Canada isadministered by a singlecompany in each provinceowned by the provincialgovernment or by a subdepartment of the provincialgovernment. There is nocompetition from the privatesector. MPCI is heavilysubsidized by both levels ofgovernment (Federal &Provincial) and Rates areactuarially set by therespective provincial company/ government department. Inmost provinces crop insurancewas introduced in the 1960’sso the level of information forrating & administrativepurposes is supported byquality database. Eachprovincial company buys StopLoss reinsurance mainly toprotect their crop insurancefund.3. ChinaThe People’s InsuranceCompany (Group) of China (PICC) has offered cropinsurance in China since the1950s but it was only in 2007that the central governmentstarted a subsidized cropinsurance pilot for both cropand livestock. This has nowgrown into a USD 7 bn industryand now covers forestry inaddition to crop and livestock.Today PICC is responsible for50% of all crop insurance withthe other 50% offered byTwelve local and nationalinsurance companies. All thesecompanies buy Quota shareand stop Loss reinsuranceprotection in the internationalreinsurance market. However,in 2016 the Chinesegovernment took the decision

to set up the ChineseAgricultural ReinsurancePool (CARP) to write 50% ofall agricultural reinsurancepurchased.4. South KoreaIn Korea, crop insuranceprogram was introduced in2001 with the enactment ofthe Crop Disaster InsuranceAct. The crop insuranceprogram is handled by apublic private partnershipand is heavily supported bythe government.The crop insurance schemeis managed by the National

Agriculture CooperativeFederation (NACF). TheNACF is reinsured on aquota-share basis with 6 localreinsurers. Only the liabilityin excess of 110% localmarket loss ratio and up to180% local market loss ratio(150% after 2013) istransferred to theinternational reinsurancemarket. The governmentacts as the reinsurer of lastresort for all the liability inexcess of a 180% local marketloss ratio (150% after 2013).Fig: Crop Insurance in SouthKorea.

Source: Agriculture Insurance in Asia. Challenges in developing markets.Peter Book. Allianz Re Singapore. August 2017

5. SpainOne of the key characteristicsof the Spanish AgriculturalInsurance System was thesetting up of a Pool in whichall the insurance companiesoffering agriculturalprotection would operate.The Pool is managed by aservice company,Agroseguro (SA). There arenow Twenty Nine national &foreign private companies in

the pool. Thus ‘risk’ isassumed in a ‘co-insurance’regime. The commerciallyrun but publicly ownedInsurance CompensationConsortium (CCS) is amember of the pool with a10% of participation.Agroseguro acts as reinsurerfor the Pool. There is no price/ indemnity competitionbetween members.Competition between

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members is purely on service.As a Pool manager, AgroSeguro has the responsibilityof pricing the products,drafting all insurancecontracts and distribution ofall contracts through thenetwork of memberinsurance companies. Onbehalf of the Pool members,they oversee all lossadjustment and handle claimssettlements. Agroseguro isalso assigned for assumptionof all agricultural risk fromPool members anddistribution of all assumedrisk back to Pool members inaccordance with the share

each member has in the Pool.There are two further controlmechanisms to ensurepremium rates are setcorrectly by Agroseguro andmember companymanagement expenses arecontrolled appropriately. Oneis through oversight from theEconomy Ministry, whoregulate the whole insurancesector, and the other isthrough oversight from theFarmers Union and ENESA.CCS acts as reinsurer of thePool through an annuallynegotiated contract. CCS alsohas oversight of all lossadjustments, in order to

The following is the system’s general operating pattern:

ensure the transparency andjudicial safety of the system.In reinsuring AgroSeguro,CCS offers (Stop Loss)protection at two differentrates dependent upon theneeds of the membercompany. Those requiring a‘special’ financial protection,(for whatever reason), pay ahigher rate than those who donot. Pool members arerequired to approach CCS firstfor reinsurance coverage. Poolmembers also buy Stop Lossreinsurance for the coveragethey need beyond thatprovided by CCS at a standardadjustable rate.The Agroseguro framework isas under:

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Other than the traditionalinsurance and Reinsurance,there are alternative riskstransfer techniques which arebeing explored. The twosolutions used are Alternativerisk transfer and CatastropheBonds

Alternative Risk Transfer(ART):Alternative risk transfer, alsoknown as ART, enablescompanies to transfer risks toanother party or to capitalmarkets investors and thusreceive protection against

certain risks the transactionsaim to cover. ART solutionsare tailor-made risk financingsolutions and a key responseto some of the limitations ofthe traditional insurancemarket and can help in threesignificant ways:

Entire premium is collectedby the individual insurancecompanies, and the total riskis transferred to the Pool.The Pool is authorized toretrocede risks to insurancecompanies (voluntarily

participation). Whereretrocession does not takeplace, reinsurance coverthrough domestic andinternational reinsurancecompanies is required. As alast resort, if the reinsurance

cover provided by domesticand international reinsurancemarkets is insufficient, theGovernment will provideCatastrophe Stop Lossprotection.

TurkeyAs per the “AgriculturalInsurance Act” passed in2005, an AgriculturalInsurance System wasestablished wherein theAgricultural Insurance Pool(TARSIM) with public-private partnerships in

Turkey’s agriculturalinsurance sector was devised.By law, all agricultural risksinsured are to be transferredto the pool (TARSIM) so as toallow for a standardizedagricultural insuranceproduct across the country,which means the conditions

for transferring risk arepoliced and it ensurescentralized payment systemfor loss indemnification.Insurance companies canoptionally take aretrocessional share from it.Broad framework ofTARSIM is depicted asunder:

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1) to self-finance risks whichare not typically coveredby a traditional insurancepolicy,

2) to transfer non-traditional risks andfinally

3) to access alternativeforms of capital whichintroduces competitionand helps drivecompetitive pricing

The main areas of alternativerisk transfer include risksecuritization throughcatastrophe bonds, insurance-linked securities andreinsurance sidecars, tradingof risk through industry losswarranties and weatherderivative contracts andtransforming capital marketrisks into reinsurancethrough transformer vehicles.Other techniques sometimesconsidered part of alternativerisk transfer include Captiveinsurance companies, lifeinsurance linkedsecuritization, longevity risktransfer and other alternativerisk financing techniques.Catastrophe Bonds (CatBonds)Catastrophe bonds (alsoknown as cat bonds) are risk-linked securities that transfera specified set of risks from asponsor to investors. Catbonds emerged from a needby insurance companies toalleviate some of the risksthey would face if a majorcatastrophe occurred, whichwould incur damages thatthey could not cover by theinvested premiums. Aninsurance company issuesbonds through an investmentbank, which are then sold to

investors. These bonds areinherently risky, generally BBand usually have maturitiesless than three years. If nocatastrophe occurred, theinsurance company would paya coupon to the investors.However, if a catastrophe didoccur, then the principalwould be forgiven and theinsurance company would usethis money to pay their claim-holders. Investors includehedge funds, catastrophe-oriented funds, and assetmanagers. They are oftenstructured as floating-ratebonds whose principal is lostif specified trigger conditionsare met. If triggered theprincipal is paid to thesponsor. The triggers arelinked to major naturalcatastrophes. Catastrophebonds are typically used byinsurers as an alternative totraditional catastrophereinsurance.Major Challenges facedby Crop Reinsurers inIndia• Pricing: The premium

rates are to be charged onactuarial calculations/methodology. Howeverfierce competition amonginsurers result inpremium rates that arenot satisfactory to theReinsurers in many cases.

• Claim Management: Theclaims are calculated onthe basis of yield derivedfrom the Crop CuttingExperiments (CCEs). Asthe CCEs conducted by theState Governmentmachineries involvehuman intervention, itleads to delay apart from

moral hazard issues( bothfrom Insured and Insurerside) in the datarecorded.

• Anti-Selection and MoralHazards: As the businesscomes from riskierlocations.

• Data/Statistics: Insurersshare the provisionalbusiness statistics withthe Reinsurers from timeto time. However, theactual business statisticsreaches the Reinsurersonly after the claims arefinalized.

• Cash Flow: The premiumsubsidy share receipt isusually delayed by thegovernments whichfurther affect the releaseof Reinsurance premiumto the reinsurers. Thisdelay has an impact in thecash-flow of theReinsures.

Need of the Hour: CropInsurance Pool in India• Individual companies

have limited ability toretain. Risk -Poolingenables greater localretention. It enhances theunderwriting capacity.

• A Pool could avoidinefficiencies in biddingProcess in each State.

• Reduced cost ofreinsurance due to riskdiversification and riskconsolidation

• Same underwritingstandards and premiumrates for all insurancecompanies

• Government support andcoordination is mucheasier when dealing with

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single entity• Pooling will make the

portfolio less volatile andmore predictable.

• It helps to create a PPP(Public PrivatePartnership) model inCrop Insurance.

ConclusionWith the issuance of therevised OperationalGuidelines by the Ministry ofAgriculture and Farmers’

Welfare (MoAFW), many ofthe challenges faced by theReinsurers mentioned abovehave been corrected. Now,the Insurance companies arealso focusing more on bothPricing and ClaimManagement at a larger scale.The premium under PMFBYis growing as the Governmentintends/ targets to insure50% of the farmers in 2019-20 as against 30% of presentlevel. There is going to be

References: 1. Goodwin, Barry K. 2013. Agricultural Reinsurance Issues. North Carolina State

University October 7, 2013 AAEA Crop Insurance and The Farm Bill SymposiumLouisville, Kentucky. https://www.aaea.org/UserFiles/file/Plenary-AgriculturalReinsurance.pdf

2. Huang, Yutsai. 2013. Crop Insurance Program in Korea. http://ap.fftc.agnet.org/ap_db.php?id=144

3. http://www.artemis.bm/library/what_is_alternative_risk_transfer.html 4. https://www.willistowerswatson.com/en/insights/2017/08/what-is-alternative-risk-

transfer 5. https://en.wikipedia.org/wiki/Catastrophe_bond 6. http://fenaber.org.br/uploads/assets/files/Apresenta%C3%A7%C3%A3o%20-

%20Eduardo%20Porcel%20-%20English%20version.pdf

greater demand forreinsurance capacity. It isgoing to be win-win situationfor all the stakeholders. CropInsurance with Reinsuranceas backbone is a vehicle whichis not only mitigating croprisks for farmers, but alsohelping in food security,protecting credit, alleviatingpoverty, enhancing farmerincome, stabilizingGovernment fiscal volatilityetc.

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Issue Focus‘Reinsurance - It’s evolution and role in the

Indian Context’

Reinsurance is the transfer ofa part of the risk/portfolio thata direct insurer assumes byway of insurance contract toa second carrier, theReinsurer, who has no directcontractual relationship withthe insured. The reinsurancecover may be used fordifferent purposes such asreduction of exposure to asingle major risk, to covercatastrophe risk or to protectagainst major variations inthe loss experience of entireportfolios.Reinsurance acts asa contingent capital for theinsurers and recently is alsobeing used by insurersworldwide to provide capitalrelief.

Evolution

Reinsurance has its originmuch after insurance in the16th century globally with theneed to spreading riskbeyond local markets. Itstarted with reinsuringindividual risks (FacultativeReinsurance) and graduallydeveloped into a portfolioprotection for each class(Treaty Reinsurance).Further, the concept of excess

Prior to Nationalization

In India, prior tonationalization, there wasvery little reinsuranceprevalent in the local market.The period from 1951onwards was marked by arapid growth of insurancebusiness due to large scaleeconomic development in thecountry. The branches offoreign companies in Indiawere protecting theirportfolios under globalprogrammes and domesticcompanies had little need topurchase reinsurance owingto only small and mediumrisks in the portfolio. At thattime, reinsurance wasarranged from the foreignmarkets mainly British andContinental. For providingthe reinsurance capacity inlimited way, there existed anIndian Insurance Pool withmembers as local companiesand purpose to share thebusiness underwritten byeach company to stabilize theresult of market as a whole.In 1956, Indian ReinsuranceCorporation, a professionalreinsurance company was

of loss reinsurance wasintroduced to protectportfolios against catastrophehazards.

Reinsurance isthe transferof a part of the risk/portfolio that a directinsurer assumes by way ofinsurance contract to asecond carrier, theReinsurer, who has nodirect contractualrelationship with theinsured. The reinsurancecover may be used fordifferent purposes such asreduction of exposure to asingle major risk, to covercatastrophe risk or toprotect against majorvariations in the lossexperience of entireportfolios.Reinsuranceacts as a contingent capitalfor the insurers andrecently is also being usedby insurers worldwide toprovide capital relief.

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Mr. Sanjay DattaICICI Lombard General Insurance Co.Ltd.

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formed by general insurersoperating in India and itstarted receiving premiumcessions from membercompanies. Apart from thepool, the government made itstatutory in 1961 for everyinsurer to cede 20% in Fireand Marine Cargo 10% inMarine Hull andMiscellaneous insurance and5% in Credit and Solvencybusiness to approved Indianreinsurers, namely IndianReinsurance Corporation andIndian Guarantee andGeneral Company with thepurpose to retain thepremiums domestically to theextent possible. The abovementioned percentages were,to be allocated equallybetween the two reinsurers.

Post Nationalization

The entire general insurancebusiness in India wasnationalized by GeneralInsurance Business(Nationalization) Act, 1972(GIBNA). Subsequent to thenationalization, the aforesaidcompanies were merged intothe statutory entity, GeneralInsurance Corporation ofIndia (GIC) which wasincorporated on 22November 1972 under theCompanies Act, 1956 as aprivate company for thepurpose of superintending,controlling and carrying onthe business of generalinsurance and continued toreceive 20% mandatorycessions. The erstwhilegeneral insurance companieswere merged into fourregional companies and weremade wholly ownedsubsidiaries of the GIC,

making it the parent body tooversee the affairs of generalinsurance industry. GIC tookthe onus of arrangingreinsurance protections forthe insurance companies witha common integratedreinsurance programme tomaximize the retention.Inaddition to the above, thetariff structure startedoperating in most of theclasses to achieve a greaterdegree of homogeneity withreinsurance purchase limitedto manage large/specialclasses of business.

Post Liberalization

On 19th April, 2000, theInsurance Regulatory andDevelopment Authority Act,1999 (IRDA) came into forcewherein the exclusiveprivilege of GIC and itssubsidiaries carrying ongeneral insurance in Indiawas removed. In November2000, GIC was renotified tohave the sole function ofnational reinsurer andconsequently GIC ceased tobe a holding company of itssubsidiaries. The ownershipof the four erstwhilesubsidiary companies and alsoof the General InsuranceCorporation of India wasvested with Government ofIndia. The insuranceindustry was now responsibleto arrange its ownreinsurance protection.

Reinsurance Regulations

IRDAI released the first set ofreinsurance regulations on14th July, 2000 with theobjective of maximizingretention within the country,develop adequate capacity,secure the best possible

protection for the reinsurancecosts incurred, and simplifythe administration ofbusiness.

Regulation 10 of IRDA(Registration of IndianInsurance Companies)Regulations, 2000

(Registration Regulation) laiddown the mode and mannerfor making an application forcarrying on insurancebusiness in India. Everyapplication was required to beaccompanied by evidence ofhaving rupees two hundredcrore or more paid up equityshare capital, in case theapplication for grant ofcertificate wasfor reinsurance business.

In order to support thetransition, the mandatorycessions from the directinsurers to GIC was continuedat 20% till 2006-2007. It wasgradually brought down to15% in 2007-2008; 10% in2008-2013 and currently is at5%. On October 25, 2017, GICRe got listed on the stockexchange and is currently the10th largest global reinsurer.With the industry maturingand recognizing the need tobring in more capital andinnovation, the regulationswere framed allowing foreignreinsurers to open branchoffices in India.

IRDAI vide InsuranceRegulatory DevelopmentAuthority of India(Registration and Operationsof Branch Offices of ForeignReinsurers other thanLloyd’s) Regulations, 2015permitted registration andoperation of branch offices ofForeign Reinsurers in India.

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Graph 01: Reinsurance premium ceded % GWP

The overarching regulatoryframework for thereinsurance of generalinsurance risks was laid downby the IRDAI (GeneralInsurance-Reinsurance)Regulations 2016(Reinsurance Regulations).

The guidelines prescribe indetail, the capitalrequirement and othercompliances needed foropening a branch office in

protection for large losses.The commercial lines businesslike fire and engineering andspecialty lines likeAgriculture, Liability andAviation are morereinsurance dependent withboth proportional and non-

proportional reinsurancestructures in place. Due tothis, the reinsurance ceding isnot in line with product mixof general insurance market.An analysis of the portfolio ofGIC Re for FY 2018 validatesthis point [Graph 02].

India. Since Lloyds arestructured in a mannerdifferent from the companymarkets, separateregulations were prescribedfor it. Since then severalforeign reinsurers haveopened branch offices in Indiawhich include Munich Re,Swiss Re, Hannover Re,SCOR Re, XL Catlin, Gen REand Allianz. Markel and Amlinhave also opened branch

offices under the Lloyd’splatform.

Reinsurance Outlook

India is considered to be oneof the important emergingmarkets for the reinsurers.Rapid industrialization andurbanization along with verylow General insurancepenetration (0.77% of GDP)provides a compellinginvestment case.

In terms of premium, theIndian reinsurance marketgrew at a CAGR of around12% since 2009 with almost30% of the total premiumceded to reinsurance market[Graph 01].The increase wasdue to the robust growthposted by the insuranceindustry, which was aided bycoming of new entrants in theinsurance sector. In therecent past the bulk growth inthe reinsurance premium hasbeen contributed by theAgriculture portfolio.

Of the total reinsurancepremium, treaty businessaccounts for over 85% whilethe balance is facultativereinsurance. In India, thepersonal lines business likeHealth and Motor are largelyretained by the companieswith some excess of loss

Graph 02: Mix of Reinsurance premium received by GIC, 2018

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Graph 03: Reinsurance ceding

Further, the motor and health premiums are largely treaty driven and obligatory cessions toGIC and hence may not follow the Indian reinsurance market in general. A study of the totalcessions for FY between India and outside India is given below [Graph 03].

References:

· Global ReinsuranceHighlights 2018 (pp. 1-88, Rep.). (n.d.). Bromley,UK: Intelligent Insurer.

· History in brief. (n.d.).Retrieved November 28,2018, from https://www.gicofindia.com/en/about-us

· Reinsurance in IndianPerspective. (n.d.).Retrieved December 01,2018, from http://theinsurancesurveyor.com/insurance-education/reinsurance-in-indian-perspective/

· Nema, D. K., Dr, & Jain,P. (2012). GROWTH OFREINSURANCE ININDIA. ZENITHInternational Journal ofBusiness Economics &Management Research,57-70. doi:http://zenithresearch.org.in/

regulations such as RERA,there is an inherent need fornewer and wider coversaround cyber, liability,aviation, energy, unarmedvehicles etc., and therebyneed of working collectively todevelop risk and pricingmodels and enhanceunderwriting standards,pricing and wording ofpolicies. The cedants’expectations have alsoevolved and they now look fornot only capacity providersbut also for risk partners aswell.

The regulator continues toplay an important role toevolve the market by furtherexploring regulatoryframeworks and practicesrelating to reinsurance pools,Alternative Risk Transfer(ART) and such othermechanisms and makeappropriate recommendationsapart from attaining globalbest practices.

However, with the operationsof foreign branches gettingstabilized over time, thepremium retained in India isexpected to increase further.

Way forward

The role of reinsurancemarket traditionally has beento fuel growth and stabilizethe primary insurance marketwhich continues to be valid aseconomy is growing at 7% andcreating more risks.Reinsurance will stimulatebetter growth in terms ofconcentration of risks. Thereis an incremental role to playby the reinsurance marketdepending on the class ofbusiness. Focus on innovationand technology solutions forpersonal lines such as Health,Motor, Home and morecapital infusion to supportinfrastructure projects ondams, ports, roads and otherslargely under engineering andfire. With increased scope ofinsurance and changing

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Neha AnandUnderwriter, CasualtyMunich Re India Branch

Cyber risks are omnipresent.As the WannaCry andNotPetya ransomwareattacks demonstrated, theeconomic cost from businessinterruption and loss of datais now occurring on anunprecedented scale. Withdevices and machinesbecoming moreinterconnected, cyber threatsare fast becoming the risk ofthe century.With the ever progressivetechnology developments,new associated hazards andrisks are surfacing – fromcyber-attacks to intrusions.Cyber-attacks are nowbecoming more specialized,concentrated in nature,targeting all types oforganizations, as well asindividuals. The impact due tothese incidents is alsoalarming – it spans financiallosses, disruption of businessoperations, erosion ofshareholder value and trustand reputational damage. Thethreat is so daunting that thequestion is not how or if anattack will happen, but whena company will discover that

Cyber Insurance andReinsurance Trends

it has been hacked.Cyber risk is very dynamicwith no geographic boundary.It qualifies among the topperceived threats tobusinesses globally. Cyber-attacks rank 3rd on list of Top5 Global Risks in terms oflikelihood.(Source The Global Risks Report

2018 by World Economic Forum)

For instance, NotPetya (oneof the most vicious ofmalwares) in 2017 severelyimpacted giants like Maersk,Merck, Saint Gobain,Mondelez. Globally it costedcompanies an estimated USD1.2 billion. The insuranceclaims from Cyclone Harveywere USD 30 billion in 2017.It was almost like an act ofcyber war – the intention ofthe malware was purelydestructive. It irreversiblyencrypted computers’ masterboot records, the very part ofthe machine that tells it whereto find its own operatingsystem. Maersk had toreinstall their entireinfrastructure with 4000 newservers, 45,000 new PCs,

2,500 applications.According to publicinformation, the impact onCosmos Bank in India was tothe tune of INR 94 crore dueto malware attack on thebanking systems whichenabled nearly 14,800fraudulent transactions.Private individuals canbecome victims ofcyberattacks just as easily ascompanies. India is the secondlargest online market, with369 million internet usersrecorded in 2017. India is nowranked number one mobiledata consuming country.While very few get reported,the number of Cyber-crimescommitted in India isincreasing steadily. According

Cyber risk is verydynamic with nogeographic boundary. Itqualifies among the topperceived threats tobusinesses globally.Cyber-attacks rank 3rd onlist of Top 5 Global Risksin terms of likelihood.w

Source The Global Risks Report 2018 by World Economic Forum

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to the National Crime RecordsBureau (NCRB), the motivebehind these cyber-crimes isfinancial gain, genderexploitation and to causedisrepute. The risks outlinedabove are a significant threatfor business continuity orcause of financial loss to anindividual.The Legal Environmentfor Cyber CrimesThe primary law dealing withcyber-crime and e-commercein India is based on theInformation Act 2000. Whenit was formulated, the mainintention was to provide legalframework for the promotionof e-governance and e-commerce in the country. TheAct has 90 sections and setsout various cyber-crimes andtheir associated prescribedpunishments. It wasamended in 2008 to includesections related to electronicdevices, digital data andcyber-crimes.In IT Amendment Act, 2008,cyber security is exercisedunder sections 43 (dataprotection), 66 (hacking),66A(measures against sendingoffensive messages), 66B(punishment for illegallypossessing stolen computerresources or communicationdevices), 69 (cyberterrorism) among others.India is yet to have a GeneralData Protection Regulation(GDPR) equivalent of its own,however work has started inthis direction. In July 2018,Justice BN SrikrishnaCommittee submitted itsreport on Personal DataProtection to Minister ofElectronics and InformationTechnology. The salientfeatures of the report are:

The law will havejurisdiction over theprocessing of personaldata if such data hasbeen used, shared,disclosed, collected orotherwise processed inIndia.

Personal data collected,used, shared, disclosedor otherwise processedby companies underIndian law will becovered, irrespective ofwhere it is actuallyprocessed in India.

However, penalties willbe defined for violationof data protection law.Just like GDPR, thepenalties imposed willbe up-to a fixed upperlimit or a percentage ofthe total worldwideturnover of thepreceding financial year,whichever is higher.

The law defines, whatqualifies as sensitivepersonal data whichincludes passwords,financial data, healthdata, biometric andgenetic data.

Cross border datatransfer will be throughmodel contract clauseswith transferor beingliable for harms causedto the principal due toany violationscommitted by thetransferee.

Cyber security and needfor Cyber Insurance – Amarket perspectiveCyber security refers tomethodologies and techniquesadopted to protect theintegrity of networks,programs and data from

attack, damage orunauthorized access.According to Forbes, theglobal cyber security marketwill reach around USD 170billion in 2020. By 2022,cyber security ratings will beas important as financialcredit ratings when assessingbusiness relationships.Given the fact that cyber-attacks are getting more andmore sophisticated,companies will need to adopta proactive approach tohandle them rather than beingreactive. People, processesand technology are the threemain areas where companiesneed to focus when it comesto making their ecosystemscyber-secure. On a macrolevel, government,universities and industryneed to get together to find aviable solution for cybersecurity at large, for thenation.‘Cyber Insurance’ is nowbeing used as a strategy bycompanies for addressing therisk but is still at a verynascent stage in India. It isoffered as a standalone coverwith first party and thirdparty loss coverages or is alsooffered as an extension to theexisting Casualty or Propertypolicies. Given that the impactof Cyber-attack can beextensive, the recommendedway is to cover the exposuresas a standalone policy withexclusive policy limits and nottied-in with existinginsurance programs. Thiswould ensure that thepotential impact on key riskssuch as BusinessInterruption, loss of revenue,legal expenses and manyothers can be considered

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comprehensively andappropriately.Given the nature of Cyberrisks, it is fair to say thatevery Non-life policy ispotentially exposed to cyberrisk. For instance – in theevent that unauthorizedaccess of machinery is takenin a manufacturing set up, thiscould manipulate theoperating software, causingmachinery breakdown whichcould result in fire, and in turncould set the plant on fire anddamage neighbouringproperties. Eventually thereis physical damage to theproperty, businessinterruption and third partyliability claims. Both theproperty and CGL policies canbe triggered. Theseunassessed and/orunmeasured exposures underthe conventional policies arenow being termed as “SilentCyber” which means cyberrisks may or may not bespecifically excluded or ifincluded are ambiguous, orunclear. These exposuresneed to be appropriatelyaddressed by (re)insurerswhile underwriting andawareness needs to be raisedamongst policy buyers.Cyber insurance is alsoavailable for individuals with

two insurers offering suchcover in India currently. It canprovide indemnification toindividuals for financial loss,legal costs, IT consultant feesand fees for psychologycounselling services, ifrequired, by an individualunder scenarios such asunauthorized onlinetransactions, onlinereputation damage, identitytheft, phishing events anddata restoration due tomalware attack.Market DevelopmentCyber insurance demand isincreasing exponentially inIndia. The number of buyershave increased by almost50% in 2017 as compared to2016. Premium-wise, it isabout INR 200 crore market.This figure is expected todouble in the next two yearsfrom now. The buyers initiallywere mostly large Techcompanies which were buyinglarge limit of indemnities butnow the surge in demand iscoming from FinancialInstitutions (especially banks,payment wallets), E-commerce, Hospitality,Multimedia and Advertisingcompanies. The limit ofindemnity on an averagerange from USD 5 to USD 20million but there are also fewcompanies buying limits ashigh as USD 100 million.Since personal lines cyber isfairly new offering in themarket, the growth is yet tobe seen. The limit ofindemnities range from INR50,000 to INR 1 crore. Theseare products withpredetermined premium andcoverages with no individualunderwriting requirements.Future OutlookThe ever-changing nature ofcyber risks and exposures will

keep (re)insurers on theirtoes. The need is to keepinnovating in terms ofcoverages which need to becustomized and shouldaddress the requirements ofthe customers depending onthe industries they are in. Forexample, the need of amanufacturing set-up isdifferent from that of afinancial institution purelybecause of the data sets theycontrol and the business areasthey operate in. There arestill gaps in coverage beingoffered in the market andconstant development in theoffering is needed as theimpact on clients expands anddiversifies.Also there is a need to managethe exposures and monitorthe accumulation because asingle event can impactmultiple insured parties, aswell as multiple non-lifecoverages.Needless to say there is a hugebusiness potential for thecyber insurance market. Asawareness about cyber-attacks and their risks grows,more and more industryleaders are recognizing Cyberrisks as a threat to theirbusiness operations and theneed to protect themselveswith cover. The times areover when a typical crimeconstituted a person beingheld up and robbed. Intoday’s environment crime isfar more complex: attacks likehacking may be unseen, butthey certainly can have asignificant and negativeimpact.

Cyber security and needfor Cyber Insurance – Amarket perspectiveCyber security refers tomethodologies andtechniques adopted toprotect the integrity ofnetworks, programs anddata from attack, damageor unauthorized access.w



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Climate Change - Modelling and pricing challenges

Climate change is real andpresent. Endless humanenterprise and the desire forcomfort are driving up theemission of greenhouse gases(GHGs), which in turn aretriggering changes in manyclimate hazards likehurricanes and floods. Themixture of heat, smoke anddust produced in land andcarried over by winds formsan envelope over the seas,causing the seawater tobecome warm. Warmerwater keeps the air warmerfor longer, further energisinghurricanes. Furthermore,some research suggests thatclimate change is weakeningthe natural atmosphericcurrents, which makeshurricanes stall and release agreater amount of water intothe surface. This is the reasonbehind the increasinglyfrequent and strongerhurricanes, which arefollowed by heavier andprolonged downpours causingfloods.Increased global warming hasalso led to melting of polar icecaps and increasing sea levels,

which in turn has made stormsurges even more devastatingas higher volume of water ispushed inland. This rise in sealevel can make tsunamis evenmore destructive. What’s

more, a team of 23 scientistswho reviewed more than3,000 peer-reviewedscientific papers hasconcluded that peopleworldwide could be forced tocope with three to six majorhazards like risingtemperatures, drought, heatwaves, wildfires,precipitation, floods, powerfulstorms, sea level rise, etc atonce.India, with its population of125 crore and counting, is nodifferent. It is one of the mostvulnerable countries toclimate change. As per astudy by the UN office forDisaster Risk Reduction(UNISDR), India sufferedeconomic losses to the tune ofUSD 80 billion during the 20year period from 1998-2017;primarily due to economicdevelopment, populationgrowth, urbanization andincreasing concentration ofassets in areas vulnerable toclimate change. We arecontinuously building invulnerable zones exposed torisks of flood, cyclones andtsunamis. India’s increasing

Increased global warminghas also led to melting ofpolar ice caps andincreasing sea levels,which in turn has madestorm surges even moredevastating as highervolume of water is pushedinland. This rise in sealevel can make tsunamiseven more destructive.What’s more, a team of 23scientists who reviewedmore than 3,000 peer-reviewed scientific papershas concluded that peopleworldwide could be forcedto cope with three to sixmajor hazards like risingtemperatures, drought,heat waves, wildfires,precipitation, floods,powerful storms, sea levelrise, etc… at once.

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Ms Prachi Ajmera,Trainee Underwriter –Non-Life Hannover Rück SE – IndiaBranch.

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urban footprint meansincreased concretisation ofthe surface, reducedrainwater absorption capacityof the soil and more peopleliving in flood prone areas.The planning and design is notin accordance with the pace ofclimate change. For example,drainage systems of the citieslike Mumbai, Chennai,Bangalore and Gurgaon havebeen constructed based onhistorical data withoutconsidering the impact ofclimate change. Suchinfrastructure is oftenrendered ineffective duringdownpours leading to cityfloods.Recent floods in Kerala havebared open a situation thatcan be best described as a“disaster-dilemma scenario”.As it rained heavily over amonth, the dams across thestate filled up and crossed thedanger mark simultaneously.The dams were (probably)allowed to be filled initially tocreate adequate reserve ofwater in order to avoid adraught situation in theforthcoming months.However, to prevent burstingof reservoir walls in the wakeof incessant rains, the gates oftwenty-six dams had to beopened simultaneously, whichcaused the wide spread flood.Man- made factors like theseare increasingly making“natural disasters” even moredevastating.Uncertainties associated withthe increasing impact ofclimate change on naturalcatastrophes, man-madefactors and soft marketconditions make it a difficultchallenge for reinsurance

underwriters to evaluate,model and price catastrophicexcess of loss covers.Pricing for such Act of God(AoG) perils is done based onmodelled results. However, aquestion that remainsunanswered is: are themodels able to estimate theimpact appropriately? Existing models use historicalloss data of 100 years toarrive at a result.Nevertheless, increasedfrequency and severity of catevents in the recent years ismaking such modelled resultsineffective. As a compromise,using a shorter period of 25-35 years is being consideredby underwriters.Furthermore, in no way dosuch models cater to grey orblack swan (extremely rareand unexpected) events,which cannot be ruled out. No model caters to the impactof the contributing ‘man-made’ factors on the naturaldisasters neither they canmodel ‘concurrent multihazards’ effectively. India’svast geographic spectrum anddiverse Nat Cat exposuresmakes the problem evenmore challenging forunderwriters. The ever-increasing build-up ofproperties and number of carsin cities combined withinadequate infrastructure andpreparedness to deal with theheavy rainfall inducedflooding is a sure shot recipefor disaster. No wonder thenthat the top Nat Cat eventsaffecting Indian insuranceindustry are mostly floods incities like Mumbai, Chennai,J&K and Gujarat. On theother hand, Kerala with its

wide spread flood has had alimited impact on the Indianinsurance industry. Sadly,there is no proper flood modelfor India yet, which meansthat the development ofconcurrent multi hazardmodels that capture insurers’exposures adequately wouldtake a longer time.The perception ofunderwriters also plays amajor role in pricing Nat Catrisks. Like common peoplehaving perceived sense ofexposure but no experience,even underwriters pricingNat Cat treaties believe that

Recent floods in Keralahave bared open asituation that can be bestdescribed as a “disaster-dilemma scenario”. As itrained heavily over amonth, the dams acrossthe state filled up andcrossed the danger marksimultaneously. The damswere (probably) allowed tobe filled initially to createadequate reserve of waterin order to avoid a draughtsituation in theforthcoming months.However, to preventbursting of reservoir wallsin the wake of incessantrains, the gates of 26 damshad to be openedsimultaneously, whichcaused the wide spreadflood. Man- made factorslike these are increasinglymaking “natural disasters”even more devastating.

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the ensuing year shall passwithout the need for a pricechange. This belief wouldchange if reinsurance treatieswere to be written on longerthan one-year terms.Continued soft marketconditions with flood of capitalin the reinsurance space hasfurther compounded theproblem, leaving little or noroom for the increaseduncertainty and margins. Nowonder global events likeHervey, Irma and Maria orlocal events like Mumbaiflood or even Chennai floods(2015) did not cast asignificant impact on pricing.This lack of proper pricing hasforced prudent reinsurers toabstain from participation in

programs or bottom excess ofloss layers that are highlyexposed to such losses. The peril lurking round thecorner could entirely bedifferent: By the time Indiaunderstands therequirement of wide spreadNat – Cat insurance in thewake of increased frequencyand severity of cyclones-flooding along the costal beltor incidents of megacityflooding, the availablecapacity of reinsurance, thewillingness of reinsurers tosupport such exposure maydrastically reduce. Even ifsuch capacity were available,it would come at a steep price.The low uptake of insurance,especially disaster insurancein India is also attributable tothe socio-economic andbehavioural nature of thepopulation. Despite theawareness, the motivation tobuy insurance against NatCat perils is greatlyjeopardised by the ‘it will nothappen to me’ attitude ofbelievers. In addition, theperception of disaster risks inthe mind of people exposedto such risks is eitherabstract or so overwhelmingthat it creates fatigue or asense of inability to preventit if it were to affect them. Forthe extremely poor andvulnerable, who are living lifeon the edge, fending forinsurance anyway is a matterof luxury. Penetration ofinsurance in such regionstherefore continues to

remain negligible. Most often,when disaster strikes, it fallsback on the shoulders of thegovernment to cater to therelief, recovery andreconstruction efforts. Nevertheless, governmentshould act as a reinsurer oflast resort. Insurance andReinsurance should be usedas vital elements of disasterfinancing before opening upthe government’s coffers forex gratia payments orimplementing a cess. Not justfinance, but also anunderlying disaster insurancesystem based on a PPPmodel can also tremendouslyboost disaster management,coordination, communicationand mobilisation of resources,all with the objective ofminimising the losses to lifeand property.It is about time that Indiamakes hay when the sunshines, and implements a NatCat Insurance Program,develops flood or multi-hazard models for cities toensure adequate pricing andto cater to large event(s) inthe future withoutthreatening the existence ofinsurers. The development ofa sound underlyingtechnological system fordisaster management wouldalso boost this initiative.

The peril lurking roundthe corner could entirelybe different: By the timeIndia understands therequirement of widespread Nat – Catinsurance in the wake ofincreased frequency andseverity of cyclones-flooding along the costalbelt or incidents ofmegacity flooding, theavailable capacity ofreinsurance, thewillingness of reinsurersto support such exposuremay drastically reduce.Even if such capacitywere available, it wouldcome at a steep price.

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1 . The article must be originalcontribution in the form ofessay, research paper or casestudy of the author.

2 . The article must be anexclusive contribution for theJournal and should not havebeen published elsewhere in thesame form.

3 . The article should ordinarilynot exceed 2000 words. Alonger article/research papermay also be considered if thesubject so warrants.

4 . General rules for formattingtext are as under:a ) page size A4b) Font: Arial

c) Line spacing: 1.5 Leadingd) Font size: Title Arial bold

14, Sub Titles 12, Body 12,Diagrams, tables, charts 11or 10.

5 . All diagrams, tables and chartscited in the text must beserially numbered and sourceshould be mentioned clearlywherever required.

6 . The article must carry thename(s) of the author(s),contact details such as e-mail,full postal address, telephone /mobile number forcorresponding on the title pageonly and nowhere else.

7 . A brief write-up about theAuthor must also be sent.

8 . All the referred material in thearticle must be appropriatelycited. The authors are advisedto follow AmericanPsychological Association (APA)Style for referencing.

9 . All manuscripts shall be sent tothe Editor, InsuranceRegulatory and DevelopmentAuthority of India,Communication Wing, IRDAISy.No. 115/1, FinancialDistrict, Nanakramguda,Gachibowli, Hyderabad,Telangana 500032 along withelectronic mail to<[email protected]> withthe subject line - Contributionto the Journal.

1 0 . Electronic version of thecontribution typed in MS Wordfile is essential for publication.

1 1 . The articles go through blindreview and are assessed on theparameters such as (a)relevance and usefulness of thearticle (b) organization of thearticle (structuring,sequencing, construction, flow,etc.), (c) depth of thediscussion, (d) persuasivestrength of the article (idea/argument/articulation), (e)does the article say somethingnew and is it thoughtprovoking, and (f) adequacy ofreference, sourceacknowledgement andbibliography, etc.

1 2 . A honorarium of Rs. 2000/-would be given to each of thepublished articles.

1 3 . Editor of the Journal has thesole discretion to accept/rejectan article for publication in theJournal or to publish it withmodification and editing, as itconsiders appropriate.

1 4 . The article shall beaccompanied by a‘ D e c l a r a t i o n - c u m -Undertaking’ from theauthor(s).

Declaration-cum-UndertakingTitle of the Article / Essay: ___________________________________

I/We (full name of author(s)) _________ hereby solemnly declare that the work presented in the article /essay/research paper ______________________________________________________________submitted by me/us for publication in the IRDAI Journal is:

1 . Not submitted to any other publications / or website at any point in time for publication

2 . An original and own work of the author (i.e. there is no plagiarism)

3 . No ideas, processes, results or words of other authors have been presented as author’s own work.

4 . No sentence, equation, diagram, table, paragraph or section has been copied verbatim from previouswork unless it is placed under quotation marks and duly referenced.

5 . There is no fabrication of data or results, which have been compiled / analyzed.

6 . The views expressed in the articles/ essay are solely that of the authors’.

7 . I/We undertake to accept full responsibility for any mis-statement regarding ownership of this workand also of any adversarial consequences arising upon the publication of the article.

Signature of the Author: Name of the Author :

Date : ________________

Place : ________________

Contact details: _______________________________________

P.S: Attach one photograph of the author(s) along with the contribution in .jpg format.

Guidelines to the contributors of the Journal

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