GIC Re-Unique Insurance Play?

Agriculture should have combined ratio around 105%,which is fair enough given the large premium volumes. This will be partially dependent on rainfall,so could see some good and some bad years.
It was good to hear that premium disbursement’s were timely,but this should be the case given our PM’s vision of insuring 50% of gross cropped area and also creating a social security net for our farmers

I don’t think so @Anirudh72 although I must admit I know very little about this business. You see, so far Swiss Re was writing premium from Singapore for last few years and I know for a fact that they were not too happy about this roundabout way. May be the cost of business could be factor .

Now, while GIC does have a right of refusal , it is also linked to inherent capability different Swiss Re or Munich Re would have vis-a-vis GIC that has rarely been exposed outside India. For example, when Swiss Re opened their branch in India, I do not think they hired anybody from GIC at all …

I’m a firm believer of talent in businesses - particularly businesses of this kind . The ability to assess risks requires expertise in multiple domains - not just statistical actuarial mindset (and that’s why Berkshire is so admired because of person like Charlie Munger) .

My guess is that GIC would lose market share in a consistent manner . The key question would be whether the growth in overall pie would offset it . And so far, it appears to be so … At current valuations almost 30% down from IPO days, GIC does not command a premium over other Reinsurance companies and therefore I feel can be bought.

Disc - Invested.

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Does anyone have a view of what it entails to get this syndicate approval?

About Swiss Re,as far as I am aware,they are focusing more on China and LatAm currently.

Overall pie should grow at 15-20% p.a for next few years driven partially by consumer education and ofcourse by the government(on health and crop side)
Underwriting of all major general insurers has shown significant improvement. Mr.Sanjeev Bajaj,in a recent interview,spoke about much more rational pricing in the market since all players are now focused on underwriting profits vs market share/growth earlier,driven by the listing of these biggest private and PSU insurers.Given that 75% of GIC’s policies are proportional treaty reinsurance,there should be proportionate improvement in GIC’s underwriting as well.

Your point on valuations is very true,at hardly 1.1-1.2x,seems a steal at current levels.

Have limited knowledge about this,but as per my understanding, Lloyd’s a global platform for underwriting specialty lines of reinsurance(mentioned by Warren in this year’s letter also). In the last year they had underwritten 40 billion dollars of premiums and had a combined ratio of 96%. So GIC would get the opportunity to underwrite specialty lines such as aviation,engineering,etc and get to work with the best reinsurers globally. The management on the call had said they will start underwriting in a measured way from April. This is definitely an interesting development and one that should be closely tracked

The news seems surprising, given agri insurance premium for GIC has increased in 9mFY18, if I am not wrong?

Yes premiums have gone up,if I remember correctly premiums were around Rs 11250 crores for 9mFY18 vs Rs 10500 crores for the whole of FY17.
Surprising if the news is true,let’s wait and watch as to what action the government takes

I’d like to begin by stating explicitly that I personally have little knowledge about this business. However, a very close relative of mine has spent his entire career at GIC Re’s aviation underwriting department in various capacities. So what I’m sharing is what I could comprehend in my interaction with him. If there are some mistakes in my interpretation please excuse.

  1. Lloyd’s is basically a union of reinsurers.
    A lot of reinsurance business is processed through Lloyd’s. Induction in this association provides access to a greater pool of business. And, it’s prestigious as well.
    However, business even within this pool is brutally competitive.
  2. As @Gary24 mentioned,what’s of supreme importance is the quality of underwriting talent. That decides if a company can survive crises.
  3. The right of first refusal was granted to GIC Re to ensure that precious foreign exchange stays in India as much as possible.
  4. GIC Re currently is the dominant player. But, the rise of companies like Munich Re and Swiss Re in India could be a threat to GIC Re.
  5. In this industry,more than inter company relations, premium is the deal clincher.
  6. Bad circumstances lead to an increased demand for insurance and reinsurers are in a position to demand higher premiums and insurers typically end up paying significantly higher premia.
    I’ve shared what I could understand. If there are any questions I’d be happy to ask my relative.

I was doing some random googling today and came across this link. It appears that they preferential status that GIC has today, may disappear; if not immediately, in a year or so. That could be a game-changer and possibly the reason that stock has broken in last few months (the new guidelines came into being in Feb I guess)

Thank you @shreys . I think the only question to ask is whether your relative feels that GIC can grow 15-20% amidst new competition and potentially a “flat” competitive landscape (when they lose preferential status) given the agri and upcoming health insurance growth?

So, tailwinds = Growth in general insurance market including Agri + new Health insurance scheme
And headwind = Swiss Re etc. + Losing preferential status

Which is stronger?

Dear @Gary24 ,
Sure. I’ll ask him and respond as soon as possible.

I did speak to my relative and requested his thoughts on the points mentioned.

  1. He believes that there is a lot of scope for growth in insurance in India. Especially in health,fire and marine. Increased insurance obviously means increased reinsurance business.
  2. But, it’s pertinent to note that foreign reinsurers soon will take an active interest in India.
  3. Acceptance in the Lloyd’s syndicate is good. But, it may not translate into a lot of business. There are at least 100 reinsurance companies in the Lloyd’s office in London competing for business. It’s not uncommon to undercut.
  4. The big discomforting factor is the little information we possess on the quality of policies underwritten. The business hinges on the talent they possess. If other companies lure away their employees it could be a major threat.
  5. Finally, the biggest threat is the unpredictability. Even the best underwriters can’t mitigate risk completely. It’s one business that depends mainly on chance,luck to survive. Claim cycles can devastate a company’s financial well being.
  6. As markets mature, some foreign reinsurers may indulge in predatory pricing to garner business from India.
    They may become aggressive so as to attain diversification in their portfolio. Emerging markets will be major drivers of this business. Hence, it’s a region they won’t ignore.

I have a feeling that the reinsurance market wouldn’t be opened up completely. A GI committee suggested that there be a level playing field in some lines of business and that GIC retain the first right of refusal in other lines, and this seems to be the most likely solution to keep everyone happy. IRDA was supposed to finalise the regulations in the Feb meeting, but they failed to do so.

There’s also the 5% obligatory cession that GIC currently enjoys on all GI business and the reluctance of foreign reinsurers to take a big share of the crop business.

Let’s see how this all plays out.

Disc - Not invested yet.

While losing preferential status would certainly lead to market share loss, I don’t think the mere entry of the foreign reinsurers is enough. Keep in mind that these foreign reinsurers have been taking on Indian risks for decades on a cross-border basis.

The foreign reinsurers will attempt to poach underwriting talent from GIC if there’s favourable regulatory developements. That’s for sure.

Another factor, probably bigger than all other put together that came to my mind -
How much of their business is influenced by Govt.? For example, somewhere it was mentioned that GIC gave most attractive rates for agri insurance (Mr Modi’s pet project) while other reinsurance companies were not keen. So, similar to our PSU bank story, is there a risk that GIC may be coerced into underwriting loss making businesses - particularly agri and Health.

Remember, health particularly group health is grossly loss making business today.


According to the article, ICICI and SBI AMCs have initiated fresh buys in GIC in Mar '18.

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GIC has announced its BM for 25th May and is considering dividend plus bonus shares. Seems like the company is thinking of rewarding investors for the fall in price post-ipo.

It doesn’t matter how many times we cut the pie, the size of the pie will not change. While one can understand a company giving bonus every few years using the shareholder reserve it built, i cannot find a valid point for GIC to give 3 months after listing.

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Well, it listed 6months ago not 3. Besides, this step could well be just a sentiment booster, we don’t know. Equity mkts as we know them do not work just on rationale. Fear and greed drive markets mostly.

It could very well affect short term price movement and sentiment, but my point was long term value pickers should be able to see beyond these eye washes and see a stock for its true value. On this basis, I think other than increasing the liquidity, bonus and stock split gives nothing else, example being Berkshire.