General Insurance Corporation company analysis

 

Industry Profile  : The modern reinsurance industry’s evolution dates to 1842, when the first reinsurance company, Cologne Re, was established in Germany. Industry giants, such as Swiss Re and Munich Re, were also established around the same time. Reinsurance refers to the arrangement whereby insurers transfer part of the risks and liabilities written to one or more insurers or reinsurers by entering reinsurance contracts. Reinsurance is considered as the insurance of insurance. Retrocession is the risk transfer by a reinsurer in the same way. Retrocessional coverage consists of reinsurance purchased to cover a portion of the risks that the reinsurer is covering for the underlying insurance companies.

The size of the global reinsurance market is estimated to be around USD 230 billion in 2016, with the non – life segment accounting for 70% of the market.
In recent years, alternative capital products have emerged as a substitute for traditional reinsurance contracts. Alternative capital refers to a source of reinsurance capacity which is based on investors directly investing into certain reinsurance risks such as catastrophe bonds, collaterized reinsurance, and insurance – linked securities
Reinsurance allows direct insurers to manage capacity, ease surplus strain, minimize fluctuations in claim payments and lapse
exposure and manage their portfolios. The reinsurance industry also provides insurance companies with access to important
industry information and expertise.
There are two main types of reinsurance: treaty and facultative reinsurance.

Treaty reinsurance  :

In treaty reinsurance, the cedent seeks reinsurance for certain type of insurance or class of risks insured under a direct contract of insurance or specific risks within a certain period. The cedent enters treaty reinsurance contracts in advance with the reinsurer, which set out their rights and obligations including the type of treaty contract, scope of business, treaty limit, account settlement and exclusions. Once the treaty is in place, the cedent is obliged to cede and the reinsurer is obliged to reinsure all the business that comes within the scope of the terms and conditions under the treaty. Generally, under a treaty arrangement, the reinsurer does not separately evaluate each individual risk assumed under the contract and they follow
the original underwriting decision made by the cedent.

Facultative reinsurance  :

Facultative reinsurance constitutes a separately negotiated contract of reinsurance in respect of each original contract
of insurance. This permits the reinsurer to decide in each case whether to underwrite each risk and to more accurately price the reinsurance to reflect the risks. Facultative reinsurance is usually sought by cedents for risks that are not covered by their
treaty reinsurance arrangements, for amounts exceeding the sum insured of their treaty arrangements and for complex or unusual risks.
There are two sub parts of treaty reinsurance :

Proportional (quota – share).

In proportional reinsurance arrangements, the cedent’s retention amount and the reinsurer’s liability are determined according to the sum insured. The cedent and the reinsurer share the risk on a proportional basis. Premium and losses are allocated according to the agreed percentage of the sum insured. Facultative reinsurance contracts are usually proportional.

Non – Proportional (excess)

In non – proportional insurance, the liabilities of the cedent and the reinsurer are calculated based on losses. Once the losses incurred by the cedent exceed the agreed amount the reinsurer will be liable for a specified portion or all the excess loss. These are known as excess of loss agreements.

Company Profile  : Incorporated in 1972, GIC is largest reinsurar in india in terms of gross premiums accepted in Fiscal 2017, and accounted for approximately 60% of the premiums ceded by Indian insurers to reinsurers during Fiscal 2017. The company is operating is 162 countries and ranked 12th largest Global reinsurance company in 2016. The company provide reinsurance across many key business lines including fire (property), marine, motor, engineering, agriculture, aviation/space, health, liability, credit and financial and life insurance.  The company having branch offices in London, Dubai and Kuala Lumpur, a representative office in Moscow, a subsidiary in the United Kingdom that is a member of Lloyd’s of London and a subsidiary in South Africa.  The Company write reinsurance for every non – life and over half of the life insurance companies in India and have long – term business relationships with almost all of these domestic insurance companies.

The company Rated A For AM Best rating.

Shareholding Pattern  :  After IPO 14.22% stake is held by General Public out of which 5%+ is held by LIC. 6k cr Subscription From LIC in 11k cr+ IPO. Remaining is held by Goverment of India.

Financials and ratio  : 

 2013 - 142014 - 152015 - 162016 - 17
Net Premium13,616.04613,594.77715,330.23626,374.688
Income from investment982.6791302.0691436.3651638.407
Total income16,345.59316,494.12418204.46229,289.987
Net Benefits paid12,107.29411,913.12512,965.91221,529.312
Commission 2,456.082,795.5673,514.5425,364.283
Operating expenses176.331165.153190.008251.383
Expense Ratio19.33%21.77%24.16%21.29%
Loss ratio88.92%87.63%84.57%81.62%
Combined Ratio108.25%109.40%108.74%102.92%
Investment Income Ratio7.21%9.57%9.36%6.21%
Net profit2,433.0522,890.9752,823.4153,140.623
EPS28.2933.6232.8336.52
ROE20.52%20.68%17.29%17.01%
NAV147.95177.17202.48226.90

Future prospectus  : Govt open Reinsurance Sector for Private sector players since 2016 and so Many MNCs as well as Indian private companies entered in market, but Being Public sector company it is very easy for GIC to dominate market. In contradiction with Global trend, interest rates in india are high and while writing it is expected that Rate cycle is going upword. This factors are helping to the company. During reent IPO Company Came up with Fresh Equity with which it increased its capital base. IPO also help the company to rope LIC as its investor. Recently HDFC group also entered in Reinsurance market with setting up reinsurance company in London. Berkshire Hathaway also setting up business in India.

With eight foreign reinsurers and Lloyd’s being allowed to set up branch offices in India, the focus of these players on the Indian market is likely to increase. Although these reinsurers previously sourced business in India from overseas, setting up
branch offices will bring them closer to their customers. Any increase in price competition from these foreign reinsurers would
hurt the industry.
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About Ashutosh Tilak

Tracking Indian Capital Market since 2010. Finance Student, On this blog I am writing about finance and Investing. You can contact me analystashu@gmail.com or @androidashu & @InsideFinanc on twitter