Aashu Edit

UNIVERSITY OF MUMBAI
A PROJECT REPORT ON
RUPAY CARD
A PROJECT REPORT SUBMITTED IN PARTIAL
FULFILLMENT OF THE REQUIREMENT FOR
BACHELOR OF COMMERCE IN BANKING &
INSURANCE (BBI)
SUBMITTED BY:
MR. FATEHV
ROLL NO- 5242
B.COM BANKING & INSURANCE
SEMESTER-V
2O16-2017
UNDER THE GUIDANCE OF
PROF: SARAH SAMUEL
SANPADA COLLEGE OF COMMERCE & TECHNOLOGY
PLOT NO: 3, 4 & 5, SECTOR-2, SANPADA (WEST)
NAVI MUMBAI 400 703
1
SANPADA COLLEGE OF COMMERCE AND TECHNOLOGY
DECLARATION
I, FATEHVANSHIKUMAR RAMESH SONKAR, STUDENT OF
SANPADA COLLEGE OF COMMERCE & TECHNOLOGY STUDIES
BACHELOR OF COMMERCE IN BANKING & INSURANCE, FIFTH
SEMESTER; HEREBY DECLARE THAT I HAVE COMPLETED THIS
PROJECT REPORTON RUPAY CRAD DURING THE ACADEMIC
YEAR 2016-2017. THE INFORMATION SUBMITTED IS TRUE AND
ORIGINAL TO THE BEST OF MY KNOWLEDGE.
NAME: FATEHVANSHIKUMAR RAMESH SONKAR

DATE: 05TH OCTOBER 2016
2
ACKNOWLEDGEMENT
At the outset, I am thankful to my institute Oriental
Education Society, and the authorities, for providing me
an opportunity to undertake my B.Com Banking &
Insurance,
Semester
(2016-17),
and
also
for
sponsoring me to undertake project. I am thankful to the

management for giving me an opportunity to undertake my
project RUPAY CARD under the guidance of Prof. SARAH
SAMUEL as my mentor.
I would like to thank our Faculty guide, Prof. MUSTAK
DERAIYA
(Professor,
Oriental
Education
Society),
for
providing valuable suggestions and guidance during the

project. His perspective has encouraged me to incorporate a
different dimension to the project
I am grateful to my colleagues for being a wonderful
support a through at the same time I am thankful to all my
friends of Oriental Education Society, for being with me at
different junctures of need.
I also acknowledge great sense of gratitude to all
those who have enriched and improved my thinking,
through their conversations, thoughts, experience and
guided me to complete this report.
3
NAME: FATEHVANSHIKUMAR RAMESH

SONKAR
ORIENTAL EDUCATION SOCIETYS
SANPADA COLLEGE OF COMMERCE &

TECHNOLOGY
PLOT NO. 3,4,5, SECTOR 2, SANPADA, NAVI MUMBAI
4007053
CERTIFICATE
This is to certify that MR. FATEHVANSHIKUMAR RAMESH SONKAR
OF Third year of bachelor of commerce in banking & insurance,
semester v has undertaken and completed the project work titled
RUPAY CARD during the academic year 2016-2017 under the
guidance of Prof. SARAH SAMUEL submitted on 05TH OCTOBER
2016
to this college in
fulfillment of the curriculum of Third year of bachelor of commerce in

banking & insurance, University of Mumbai.
This is a bonafide project work and the information presented is true
and original to the best of our knowledge and belief.
4
PROJECT GUIDE
PRINCIPAL
External Examiner
(PROF.
SARAH SAMUEL)
(DR.D.M.MULEY)
CHIEF CO-ORDINATOR
(PROF. MUSTAK DERAIYA)
INDEX
SR.
NO.
CONTENTS
PAGE
NO.
INTRODUCTION
09
IMAGE AND SIGNFICANCE OF RUPAY LOGO
12
BACKGROUND FORMING OF RUPAY CARD
13
HOW IT COME INTO EXISTANCE
14
OBJECTIVE OF RUPAY CARD
16
BENEFITS OF RUPAY
19
RUPAY CARD FEATURES
22
RUPAY CARD ACQUIRING BANKS
29
KNOWN YOUR RUPAY CARD
30
10
IMPORTANT INFORMATION ON USAGE OF

DEBIT CARD
GENERAL RULES
33
11
38
5
12
RUPAY ROADMAP
52
13
RUPAY PAYSECURE
53
14
CONCLUSION
55
15
BIBLIOGRAPHY
56
RUPAY CARD
Index
Introduction
History of Reinsurance
Literature Review
Types of Reinsurance
Reinsurance Markets
Market Share of Reinsurers
Reinsurance in India
Terrorism- A Setback to the industry
News on Reinsurance Industry
Some Case Studies
Bibliography
6
INTRODUCTION OF REINSURANCE
Insurance, in law and economics, is a form of risk management primarily used to hedge
against the risk of a contingent loss. Insurance is defined as the equitable transfer of the
risk of a potential loss, from one entity to another, in exchange for a premium and duty of
care. Insurer, in economics, is the company that sells the insurance. Insurance rate is a
factor used to determine the amount, called the premium, to be charged for a certain
amount of insurance coverage.
WHAT IS REINSURANCE?
Reinsurance is a means by which an insurance company can protect itself against the
risk of losses with other insurance companies. Individuals and corporations obtain
insurance policies to provide protection for various risks (hurricanes, earthquakes,
lawsuits, collisions, sickness and death, etc.). Reinsurers, in turn, provide insurance to
insurance companies
Reinsurance helps primary insurers to reduce their capital costs and raise their
underwriting capacity since major risks are transferred to reinsurers; the primary insurer
no longer needs to retain capital on its balance sheet to cover them. Reinsurance thus
serves the primary insurer as an equity substitute and provides additional underwriting
capacity. This indirect capital is cheaper for the primary insurer than borrowing equity,
since reinsurers can offer to assume risks at more favourable rates thanks to their
superior risk diversification. The additional underwriting capacity permits the primary
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insurers to assume additional risks which without reinsurance they would either have to
refuse or which would compel them to provide a lot more of their own capital. In a
globalized world, in which potential financial claims are steadily rising and in which the
limits of insurability are being constantly extended, reinsurance thus assumes a major
significance for the whole economy.
8
HISTORY OF INSURANCE INDUSTRY

The insurance tradition was performed each year in Norouz (beginning of the Iranian
New Year); the heads of different ethnic groups as well as others willing to take part,
presented gifts to the monarch. The most important gift was presented during a special
ceremony. When a gift was worth more than 10,000 derrik (Achaemenian gold coin
weighing 8.35-8.42) the issue was registered in a special office. This was advantageous to
those who presented such special gifts. For others, the presents were fairly assessed by
the confidants of the court. Then the assessment was registered. Achaemenian monarchs
were the first to insure their people and made it official by in special offices. The purpose
of registering was that whenever the person who presented the gift registered by the court
was in trouble, the monarch and the court would help him. Jahez, a historian and writer,
writes in one of his books on ancient Iran "Whenever the owner of the present is in
trouble or wants to construct a building, set up a feast, have his children married, etc. the
one in charge of this in the court would check the registration. If the registered amount
exceeded 10,000 derrik, he or she would receive an amount of twice as much."
A thousand years later, the inhabitants of Rhodes invented the concept of the 'general
average'. Merchants whose goods were being shipped together would pay a
proportionally divided premium which would be used to reimburse any merchant whose
goods were jettisoned during storm or sinkage. The Greeks and Romans introduced the
origins of health and life insurance c. 600 AD when they organized guilds called
"benevolent societies" which cared for the families and paid funeral expenses of members
9
upon
death.
Guilds
in
the
middle
ages
served
similar
purpose.
Separate insurance contracts were invented in Genoa in the 14th century, as were
insurance pools backed by pledges of landed estates. These new insurance contracts
allowed insurance to be separated from investment, a separation of roles that first proved
useful in marine insurance. Insurance became far more sophisticated in post-renaissance
Europe, and specialized varieties developed.
The first insurance company in the United States underwrote fire insurance and was
formed in Charles town (modern-day Charleston), South Carolina, in 1732.
Benjamin Franklin helped to popularize and make standard the practice of insurance,
particularly against fire in the form of perpetual insurance. In 1752, he founded the
Philadelphia contribution ship for the insurance of houses from loss by fire. Franklin's
company was the first to make contributions toward fire prevention. Not only did his
company warn against certain fire hazards, it refused to insure certain buildings where the
risk of fire was too great, such as all wooden houses. Nominee of the assured could get
the policy value either at maturity or by instalments and an agreed bonus.
HISTORY
The development of a reinsurance market took a rockier road. Reinsurance of marine
risks is thought to be is old as commercial insurance, but it was not until 1864 that the
practice in the UK was legalised and the ban on marine reinsurance was removed.
Previously, reinsurance had been considered as a form of gambling.
As reinsurance of fire business appeared unattractive to UK insurers, co-insurance
remained a more common way of spreading the risk. Insurers wishing to spread their
risks then had to turn to the continental merchant banks for their reinsurance protection.
It was in continental Europe, in the early 1 SOPs, that automatic treaty reinsurance was
first developed and there are numerous examples on record of facultative and treaty
reinsurance arrangements at that time.
10
However, it took until 1852 for the first independent reinsurance company to be
established, and that company was the Ruchversicherrungs Gesellschaft of Cologne.
Several German companies, including the Aachener Ruck, followed suit, proving
themselves to he as productive as their forerunner. Unfortunately, British reinsurers who
decided to enter the field found that their initial experiences were not so fortuitous.
In the 1 870s, quite soon after setting up, a number of UK reinsurance companies went
into liquidation. Ike reasons for heir-lack of success are not altogether clear, but the UK
retained its role as a modest reinsurance market for some time, with its European
counterparts continuing to hold the stronger market position.
It is in 1880 that we find the earliest trace of excess of loss reinsurance, as established by
Mr Cuthbert Heath of Lloyds, and nor until 1907 do we find the establishment of
Britains oldest and longest operating reinsurance company, the Mercantile and General.
Then came the First World War, which brought with it a curtailment in trading
relationships between the UK and its primary reinsurance markets. This forced
companies to look within their own national boundary for cover and Lloyds, a late
entrant to the reinsurance market, began to take a more active role, attracting a large
volume of business from the United States of America.
By the end of the Second World War London had successfully established itself at the
heart of the international reinsurance market. The City of London had become the centre
for reinsurance capacity and expertise, with capital provided by British and overseas
companies and also those many individuals who were members at Lloyds.
Other reinsurance markets overseas, particularly in Germany and the United States,
continued to develop their major domestic reinsurance markets
11
RESEARCH AND METHODOLOGY

Data has collected by
Secondary Method: The study is based on secondary data which is collected and
complied from published article in journals, website, books and newspapers.
12
Types of reinsurance
13
1. Treaty reinsurance:
The ceding company is contractually bound to cede and the reinsurer is bound to assume
a specified portion of a type or category of risks insured by the ceding company. Treaty
reinsurers, including the SCOR Group, do not separately evaluate each of the individual
risks assumed under their treaties and, consequently, after a review of the ceding
company's underwriting practices, are dependent on the original risk underwriting
decision. Such dependence subjects reinsurers in general, including SCOR, to the
14
possibility that the ceding companies have not adequately evaluated the risks to be
reinsured and, therefore, that the premiums ceded in connection therewith may not
adequately compensate the reinsurer for the risk assumed. The reinsurer's evaluation of
the ceding company's risk management and underwriting practices as well as claims
settlement practices and procedures, therefore, will usually impact the pricing of the
treaty.
2. Facultative reinsurance:
The ceding company cedes and the reinsurer assumes all or part of the risk assumed by a
particular specified insurance policy. Facultative reinsurance is negotiated separately for
each insurance contract that is reinsured. Facultative reinsurance normally is purchased
by ceding companies for individual risks not covered by their reinsurance treaties, for
amounts in excess of the monetary limits of their reinsurance treaties and for unusual
risks. Underwriting expenses and, in particular, personnel costs, is higher relative to
premiums written on facultative business because each risk is individually underwritten
and administered. The ability to separately evaluate each risk reinsured, however,
increases the probability that the underwriter can price the contract to more accurately.
15
Individual risk review.
No individual risk scrutiny by the reinsurer.
Right to accept or reject each risk on its Obligatory acceptance by the reinsurer of
own merit.
covered business.
A profit is expected by the reinsurer in the A long-term relationship in which the

short and long term, and depends primarily reinsurers profitability is expected, but
on the reinsurers risk selection process.
measured and adjusted over an extended
Adapts to short-term ceding philosophy of period of time.

the insurer.
Less costly than per risk reinsurance.
A contract or certificate is written to One contract encompasses all subject risks.

confirm each transaction.
Can reinsure a risk that is otherwise
excluded from a treaty.
Can
protect
treaty
from
adverse
underwriting results.
Reinsurance Proprotional and Non-Proprotional: Both treaty and facultative

reinsurance can be written on a proportional, or pro rata, basis or a non-proportional, or
excess of loss or stop loss, basis.
1. Proportional reinsurance:
(The types of which are quota share & surplus reinsurance) involves one or more
reinsurers taking a stated per cent share of each policy that an insurer produces ("writes").
This means that the reinsurer will receive that stated percentage of each dollar of
16
premiums and will pay that percentage of each dollar of losses. In addition, the reinsurer
will allow a "ceding commission" to the insurer to compensate the insurer for the costs of
writing and administering the business (agents' commissions, modelling, paperwork,
etc.).
The insurer may seek such coverage for several reasons. First, the insurer may not have
sufficient capital to prudently retain all of the exposure that it is capable of producing.
For example, it may only be able to offer $1 million in coverage, but by purchasing
proportional reinsurance it might double or triple that limit. Premiums and losses are then
shared on a pro rata basis. For example, an insurance company might purchase a 50%
quota share treaty; in this case they would share half of all premium and losses with the
reinsurer. In a 75% quota share, they would share (cede) 3/4 of all premiums and losses.
The other form of proportional reinsurance is surplus share or surplus of line treaty. In
this case, a retained line is defined as the ceding company's retention - say $100,000. In
a 9 line surplus treaty the reinsurer would then accept up to $900,000 (9 lines). So if the
insurance company issues a policy for $100,000, they would keep all of the premiums
and losses from that policy. If they issue a $200,000 policy, they would give (cede) half
of the premiums and losses to the reinsurer (1 line each). The maximum underwriting
capacity of the cadent would be $1,000,000 in this example. Surplus treaties are also
known as variable quota shares.
2. Non-proportional:
Non-proportional reinsurance only responds if the loss suffered by the insurer exceeds a
certain amount, called the retention or priority. An example of this form of reinsurance is
where the insurer is prepared to accept a loss of $1 million for any loss which may occur
and purchases a layer of reinsurance of $4m in excess of $1 million - if a loss of $3
million occurs the insurer pays the $3 million to the insured(s), and then recovers $2
million from its reinsurer(s). In this example, the reinsured will retain any loss exceeding
$5 million unless they have purchased a further excess layer (second layer) of say $10
17
million excess of $5 million. The main forms of non-proportional reinsurance are excess
of loss and stop loss. Excess of loss reinsurance can have three forms - "Per Risk XL"
(Working XL), "Per Occurrence or Per Event XL" (Catastrophe or Cat XL), and
"Aggregate XL". In per risk, the cadets insurance policy limits are greater than the
reinsurance retention. For example, an insurance company might insure commercial
property risks with policy limits up to $10 million and then buy per risk reinsurance of $5
million in excess of $5 million. In this case a loss of $6 million on that policy will result
in the recovery of $1 million from the reinsurer. In catastrophe excess of loss, the cadets
per risk retention is usually less than the cat reinsurance retention (this is not important as
these contracts usually contain a 2 risk warranty i.e. they are designed to protect the
reinsured against catastrophic events that involve more than 1 policy). For example, an
insurance company issues homeowner's policies with limits of up to $500,000 and then
buys catastrophe reinsurance of $22,000,000 in excess of $3,000,000. In that case, the
insurance company would only recover from reinsurers in the event of multiple policy
losses in one event (i.e., hurricane, earthquake, flood, etc.). Aggregate XL affords a
frequency protection to the reinsured. For instance if the company retains $1m net any
one vessel, the cover $10m in the aggregate excess $5m in the aggregate would equate to
10 total losses in excess of 5 total losses (or more partial losses). Aggregate covers can
also be linked to the cadets gross premium income during a 12 month period, with limit
and deductible expressed as percentages and amounts. Such covers are then known as
"Stop Loss" or annual aggregate XL
Retrocession:
Reinsurance companies themselves also purchase reinsurance and this is known as a
retrocession. They purchase this reinsurance from other reinsurance companies. The
reinsurance company who sells the reinsurance in this scenario are known as
retrocession Aires. The reinsurance company that purchases the reinsurance is known
as the retrocede.
18
It is not unusual for a reinsurer to buy reinsurance protection from other reinsurers. For
example, a reinsurer that provides proportional, or pro rata, reinsurance capacity to
insurance companies may wish to protect its own exposure to catastrophes by buying
excess of loss protection. Another situation would be that a reinsurer which provides
excess of loss reinsurance protection may wish to protect itself against an accumulation
of losses in different branches of business which may all become affected by the same
catastrophe.
This process can sometimes continue until the original reinsurance company
unknowingly gets some of its own business (and therefore its own liabilities) back. This
is known as a spiral and was common in some specialty lines of business such as
marine and aviation. Sophisticated reinsurance companies are aware of this danger and
through careful underwriting attempt to avoid it.
Well-written software can either detect reinsurance spirals, or poor software will ignore
it, with the latter amplifying the effect of spiralling.
In the 1980s, the London market was badly affected by the creation of reinsurance
spirals. This resulted in the same loss going around the market thereby artificially
inflating market loss figures of big claims (such as the Piper Alpha oil rig). The LMX
spiral (as it was called) has been stopped by excluding retrocessional business from
reinsurance covers protecting direct insurance accounts.
It is important to note that the insurance company is obliged to indemnify its policyholder
for the loss under the insurance policy whether or not the reinsurer reimburses the insurer.
Many insurance companies have experienced difficulties by purchasing reinsurance from
companies that did not or could not pay their share of the loss (these unpaid claims are
known as uncollectible). This is particularly important on long-tail lines of business
where the claims may arise many years after the premium is paid.
Treaty:
19
To overcome the high administration costs and uncertainty of reinsuring large numbers of
individual risks on a facultative basis, the reinsurance treaty came into being
Proportional treaties include quota shares, various levels of surpluses and facultative
obligatory treaties. Non proportional treaties include risk excess of losses, catastrophe
excess of losses, stop losses and aggregate excesses.
A proportional treaty may he referred to as a pro-rata or surplus lines or excess lines
treaty. A non-proportional treaty may be referred to as an excess of loss, excess or X/L
treaty or emit ram.
The party passing on liability may be termed the cedant, insured, reinsured or retroceding
and the party accepting the liability may be termed the reinsurer or retrocession ire. Apart
from the term cedant, which can be applied to all parties passing on liability, the
terminology used depends on where the party is in the chain of reinsurance buying and
selling.
FINANCIAL REINSURANCE
Financial Reinsurance, also known as 'fin re', is a form of reinsurance which is focused
more on capital management than on risk transfer. In the non-life segment of the
insurance industry this class of transactions is often referred to as finite reinsurance.
One of the particular difficulties of running an insurance company is that its financial
results - and hence its profitability - tend to be uneven from one year to the next. Since
insurance companies generally want to produce consistent results, they may be attracted
to ways of hoarding this year's profit to pay for next year's possible losses (within the
20
constraints of the applicable standards for financial reporting). Financial reinsurance is

one means by which insurance companies can "smooth" their results.
A pure 'fin re' contract for a non-life insurer tends to cover a multi-year period, during
which the premium is held and invested by the reinsurer. It is returned to the ceding
company - minus a pre-determined profit-margin for the reinsurer - either when the
period has elapsed, or when the ceding company suffers a loss. 'Fin re' therefore differs
from conventional reinsurance because most of the premium is returned whether there is
a loss or not: little or no risk-transfer has taken place.
In the life insurance segment, fin re is more usually used as a way for the reinsurer to
provide financing to a life company, much like a loan except that the reinsurer accepts
some risk on the portfolio of business reinsured under the fin re contract. Repayment of
the fin re is usually linked to the profit profile of the business reinsured and therefore
typically takes a number of years. Fin re is used in preference to a plain loan because
repayment is conditional on the future profitable performance of the business reinsured
such that, in some regimes, it does not need to be recognised as a liability for published
solvency reporting.
'Fin re' has been around since at least the 1960s, when Lloyd's syndicates started sending
money overseas as reinsurance premium for what were then called 'roll-overs' - multiyear contracts with specially-established vehicles in tax-light jurisdictions such as the
Cayman Islands. These deals were legal and approved by the UK tax-authorities.
However they fell into disrepute after some years, partly because their tax-avoiding
motivation became obvious, and partly because of a few cases where the overseas funds
were siphoned-off or simply stolen.
More recently, the high-profile bankruptcy of the HIH group of insurance companies in
Australia revealed that highly questionable transactions had been propping-up the
balance-sheet for some years prior to failure. To be clear, although fin re contracts were
involved, it was the fraudulent accounting for those contracts - and not the actual use of
fin re - which was the problem. As of June 2006, General Re and others are being sued by
the HIH liquidator in connection with the fraudulent practices.
21
A REINSURANCE PROGRAMME
22
23
24
Basis of Insurance and Need for Reinsurance

General insurance business is still largely untouched by the discipline of a mathematical
base. It is obvious that insurance operates on the law of probability. The risk premium
should represent the sum total expected value of loss during a year using the probability
of occurrence of losses of different magnitudes affecting the risk. In practice, this
estimation is derived from the observed incidence of losses on the insured portfolio. Even
if an accurate mathematical determination of the expected value of loss be possible, the
actual observed losses will be different from this figure. The extent of variation will
depend on the size of the insured portfolio. The financial impact of such variation must
be kept within the sustaining reason for limiting exposure to loss on one risk according to
a schedule of retentions. Since a large number of risks offered insurance in practice
exceed the retention capacity of a company, reinsurance becomes essential for any
companys operation.
25
Good Reinsurance Management

Optimization of a companys profits and growth prospects involve optimization of its
retention and designing of its reinsurance program to best advantage. Reinsurance should
not be limited to getting rid of the portion of risk that cannot be retained. It should
contribute more positively to the companys prosperity. Since the nature of a companys
portfolio is generally not static, the reinsurance arrangements have to be kept under
review continuously. Hence, the concept of dynamic reinsurance management is
important.
The objectives of a good reinsurance program are as follows:
(a) Provide adequate reinsurance capacity to enable the business of different branches to
operate without any handicaps.
(b) Provide maximum possible freedom in rating and claims settlement.
(c) Facilitate development of knowledge and skills for the underwriting staff.
(d) Help the company to optimize its retention both in terms of premium as well as
profits. Progressive increase in retention without disruption of arrangements should be
possible.
(e) Ensure stable reinsurance arrangements both with regard to availability of cover as
well as terms.
(f) Help minimize profit ceded on reinsurances placed. Such minimization should be
equitable and should not be entirely subject to forces.
(g) Establish business relationships with reinsurers of the highest standing. Reinsurers
who will willingly and readily honour their obligations, who will take a long-term view
and stand by the company.
(h) Generate a flow of satisfactory inward reinsurance business. Such business will help
to improve the spread and balance the net retained account and should help to increase
net premium and profits.
i) Keep administration of reinsurance simple and economic.
26
Proper Retention Policy

Reinsurance is not the means to get-rid-of bad business. Automatic reinsurance
arrangements are like products manufactured by an industrial company. Similar attention
to quality of product and the reputation of the company is necessary. When there was
easy availability of reinsurance (which may not continue for ever) some companies have
been able to expand premium volume without attention to quality and have produced
good net results by keeping very low retentions and reinsuring out. However, this is a
dangerous management policy and exposes the entire future of the company to the
operation of market forces. The reinsurance program should be based on a sound
retention policy. The schedule of retentions is based on the following factors:
(a) Capital and surplus funds
(h) Complexion of the portfolio i.e., number of risks, types of risks, premium volume,
adequacy of terms, catastrophe exposures, etc.
(c) Management policy in risk-taking.
Retaining much lower than justified by these factors can insulate the company from the
effects of bad underwriting and encourage a reckless development policy. High
profitability cannot justify retaining much more than technically feasible. However, in
respect of a portfolio of profitable business with normal exposure of losses, it is possible
to increase the net retention to a higher figure based on the spread ov2r a period of five
years with a suitable working excess of loss protection. Working excess of loss
reinsurance is also the more appropriate method of keeping a reasonable retention in
classes such as marine cargo or motor insurance. However, it can cause reduction of net
retained profits in some circumstances for business such as marine hull.
Linked with determination of the size of retention is the decision pattern of reinsurance
protection. It could either be the normal method of proportional reinsurance with only
catastrophe protection for the net account or it could be an enlarged retention with excess
of loss protection and proportional reinsurance beyond the retention or it could be
27
primarily excess of loss protection with some control on exposure through proportional
reinsurance. Selection of the most appropriate system of reinsurance depends on the
nature of the portfolio, its pattern of exposure and losses.
28
THE REINSURANCE MARKETS

The existence of a market does not require the presence of buyers and sellers in one
particular building or area; the main criterion for its successful operation is that traders
can communicate to transact business. It could be said that there is really only one
reinsurance market that is the worldwide market. According to a Swiss Reinsurance
study, the worldwide demand for reinsurance in 1992 was some $l5Obn (LlOObn), with
the top 10 markets accounting for three quarters of the total. The US remains by far the
biggest purchaser at $43.3bn, followed by Germany at 23.8bn and the UK at $16.4bn.The
reinsurance market(s) operate in a constantly changing environment. What makes a risk
attractive to reinsurers today, may make it unattractive tomorrow and tax regulations,
accounting and legal processes all have an effect on reinsurers attitude to risk.
As one market contracts, another expands, taking up the surplus capacity which overspills and, with the current harmonising of EU insurance and reinsurance regulations, this
may also bring about further changes which will influence reinsurers future business
strategies. The five main international trading areas or markets of Reinsurance
The United Kingdom
The Continent of Europe
The United States of America
The Far East
Offshore
.
The United Kingdom

London is an international centre for the placing of protections for insurance and
reinsurance companies throughout the world. It has a reputation for the strength of its
security and its innovative style of underwriting, leading the way in electronic risk
placement and electronic claim advice and settlement systems.
29
The London Markets underwriting resources are produced by Lloyds and the company
market, and in 1992 the total market generated a gross premium income of approximately
L10.8bn (Swiss Re Study); 52 per cent was written by companies and P&I clubs and 48
per cent by Lloyds. The uniqueness of the Lloyds operation and the position of the
surrounding reinsurance companies is considered to have made London the major
reinsurance centre it is today.
The Continent of Europe

There is a vast amount of reinsurance capacity available from the large number of
insurance and reinsurance companies operating on the Continent.
In Germany the market is dominated by the largest reinsurance company in the world, the
Munich Re. The Cologne Re, Hannover Re & Risen & Stahl and Gargling Globate Re
rank among the top 10 in the world league table of reinsurance companies
In Switzerland the market is dominated by the Swiss Re, which ranks second in the world
and writes approximately 65 per cent of Switzerlands reinsurance premiums. The
Winterthur Group is based there too.
France, Italy and Holland also provide substantial amounts of international capacity
through companies such as Scor SA Group, General and NRG.
Many continental companies, particularly in Germany, have developed their reinsurance
accounts through strong domestic insurance portfolios. Some of the direct accounts were
built up through links with particular sections of industry and commerce, e.g. trade
unions and trade associations. Companies based in countries such as Switzerland, with a
relatively small domestic market, developed with the help of a widely spread
international network of offices.
Many major continental companies have also set up UK registered companies, which
accept business in the London market.
Reinsurers receive offers of reinsurance direct from pedants and from domestic and
international brokers. In addition, risk placement via electronic networks should also be
30
available to continental based underwriters when URZvIAs European market strategy

comes to fruition. An increasing number of reinsurers and brokers are members of the
l3russels based network, RINET (Reinsurance and Insurance Network).
The United States of America

The United States is mainly a domestic reinsurance market and the largest market of its
kind in the world. The high volume of domestic business and the continental spread of
risk have encouraged this development, and the amount which is reinsured
internationally, especially with Lloyds and London companies, is substantial.
The comparatively small volume of business which it accepts from outside its boundaries
is continuing to grow. Its top two reinsurers, Employers Re and General Re, are among
the top 10 largest global reinsurance companies in the world.
Insurance legislation is mainly a matter for the individual state, with the Federal
government taking a role in broader constitutional matters. Reinsurance operations can be
divided into admitted and non-admitted reinsurers.
Admitted reinsurers are licensed in at least one state and include alien, or non-US,
companies and Lloyds underwriters. Non-admitted reinsurers are not licensed in any
state, but operate subject to compliance with various requirements imposed by the
insurance departments within each state.
All states are members of the National Association of Insurance Commission which is a
forum for discussing aspects of insurance regulations, including securities valuation and
accounting practices. Its standards form the basis for many state regulations.
Business throughout the US can be conducted direct with reinsurance professionals,
through reciprocal exchanges or through domestic and international brokers. Over the
years a number of American brokers have developed into large international
organisations, mainly through company mergers and acquisitions.
The two main associations representing the American reinsurance market are BRM.A
(Brokers & Reinsurers Market Association), and RAA (Reinsurance Association of
31
America). BRMA is made up of leading US reinsurance brokers and broker orientated

reinsurers, and the RAA represents all the major US reinsurance companies.
The Far East

The main insurance centres in the Far East are situated in Japan and Hong Kong and,
although their international reinsurance markets are still relatively small, they are
considered to have considerable growth potential.
Japan is one of the most highly regulated insurance markets in the world and all its
domestic insurers accept both insurance and reinsurance business. Quota shares of market
wide pools and reciprocal exchanges of business have ensured a well-spread domestic
account for insurers. Based on net written premium income in 1994, the Tokyo Marine
and Fire, Toa Fire & Marine and Yasuda Fire & Marine are three of its top reinsurance
writers, the Tokyo and Toa being among the top 15 largest reinsurance companies in the
world. There are only two professional reinsurance companies, the Toa and Japan
Earthquake Re, the latter accepting only domestic earthquake business.
It was through reciprocal exchanges on their proportional treaty business that Japan first
entered the international markets. Non-reciprocal business, particularly catastrophe
excess of loss protection, is now freely placed and although there is considerable
reinsurance capacity in Tokyo, international reinsurance has not proved to be particularly
attractive to Japanese companies.
Reinsurance brokers feature heavily in servicing the Japanese market. The main market
association to which all Japanese property/casualty insurance companies belong is the
Marine and Fire Insurance Association of Japan.
Hong Kong has established itself as a regional insurance centre for the Asia Pacific Rim
and in 1993 there were 224 authorised insurers. There are approximately 10 reinsurance
companies based in Hong Kong, which have traditionally serviced northern Asia, China,
Korea, Taiwan, the Philippines and Thailand.
32
Offshore markets
A large and growing number of governments around the world have set up international
financial centres or havens, with the purpose of encouraging, through tax incentives
and other financial benefits, captive insurance companies and reinsurance operations into
their country.
A captive insurance company is owned by a company, or companies, not primarily
engaged in the business of insurance, and all, or a major portion of the risks accepted by
the captive relate to the risks of its parent and affiliated companies.
The rapid growth of the captive insurance industry is relatively recent and in 1996 there
were approximately 3,600 captives worldwide. The rise in popularity of establishing
captives in offshore domiciles can be attributable to the less restrictive insurance
regulations, freedom from exchange control, and the absence or low rates of taxation
which apply.
The major offshore centres are situated in:
Bermuda
The Cayman Islands
Guernsey
Isle of Man.
Bermuda is the largest of the offshore markets, housing over 1200 captives. It is heavily
supported by the US and it is estimated that two-thirds of all US foreign reinsurance
flows through the island.
The island has also become a major reinsurance market and has attracted a number of
highly capitalised reinsurance companies with high levels of international reinsurance
capacity.
The 1994 net premium income written by international insurance and reinsurance
companies was just over $18.8 billion. The Bermuda based Centre Re is included in
Standard and Poors top 30 reinsurers in the world.
33
Other financial centres, which may be included in the ever-lengthening list of offshore
domiciles, are situated in:Dublin, Luxembourg.
34
Reinsurance Contracts
The relationship between the insurer and reinsurer rests upon the wordings of the
contracts, which consist of important ingredients such as premium, commission, retention
and limit. The key lies in clarity while drafting the contract, the absence of which, results
in a dispute later on. The negotiating process plays an important role while drafting the
contract. Therefore, senior executives of both the parties should take a lead role in the
process and identify the loopholes in the contract and leave no communication gap.
Reinsurance generally operates under the same legal principles as insurance, and
reinsurance agreements, as with any legally binding contract, must satisfy fundamental
criteria to ensure that a valid contract is formed.
In order to decide whether a contract has been entered into, it is necessary to establish
that the basic elements of offer, acceptance and an intention to form a legal relationship
are present.
A further essential element in establishing a contract is consideration, which in
insurance and reinsurance contracts equates to the premium. This is the missing
ingredient in the formation of proportional reinsurance agreements such as quota share
and surplus treaties and, therefore, these treaties are termed contracts for reinsurance.
Whereas other contracts, such as facultative and excess of loss agreements, are termed
contracts of reinsurance. A contract for reinsurance becomes a contract of reinsurance as
each individual cession is ceded to the treaty and premium becomes due.
A valid insurance contract must additionally satisfy the following criteria:
There must be an insurable interest in the risk.

The principles of indemnity must be observed.
The principle of utmost good faith must be observed.
A breach of the principle of utmost good faith or, to give it its Latin name, uberrimae
fidei, has been the grounds for many a legal battle between contracting parties. The
principle of uberrimae fidei is probably a more onerous one in reinsurance negotiations
35
than insurance, due to the way in which reinsurance business is transacted. In order that
the principle may be satisfied, all material facts relating to the risk must be disclosed to
underwriters; it is not a requirement that underwriters must ask the right questions to
uncover the facts.
Indeed, silence can amount to misrepresentation, in the sense that nondisclosure of some
material fact by one of the parties to the contract will give rise to a remedy for the injured
party.
Where a broker is involved in negotiating terms, potential reinsurers must be informed
of all material facts which the cedant has disclosed to the broker. Whether a nondisclosed fact is material or not is often decided by the legal courts.
36
MARKET SHARE OF REINSURERS
7% 4%
FRANCE
35%
32%
GREMANY
IRELAND
SWITZERLAND
10%
10%
3%
UK
US
OTHER
Worlds Top 10 Reinsurers

Rank
Company
Net premiums written
Swiss Re Group
$27,680,199,200
Munich Re Group
$23,760,161,400
Hannover Re Group
$9,661,392,406
Berkshire Hathaway/Gen Re Group
$9,491,000,000
Lloyd's of London
$6,948,466,800
XL Re
$5,012,910,000
Everest Re Group Ltd.
$3,972,041,000
Partner Re Ltd.
$3,615,878,000
Transatlantic Holdings Inc.
$3,466,353,000
10
ACE Tempest Reinsurance Ltd.
$2,848,758,000
The growth of insurance premium by years is shown on the following chart:
37
Reinsurance In India
38
General Insurance Corporation
of India (GIC) has assumed the role of
National
market. It provides treaty and facultative
Reinsurer
capacity
for
the
to
the
insurance
company.
It continues to manage Hull Pool on behalf of the market (mainly public sector Insurance
companies).
The Pool received cession on fixed percentage basis from direct companies and after
protection;
the
business
is
retroceded
back
to
member
companies.
Large risks opt for Package Policies, insurance terms for which are obtained from
International Market
Each direct writing company arranges surplus treaties and excess of loss protection GIC
arranges market surplus treaty for Property, Cargo, and Miscellaneous accident business
and direct company can utilize the market surplus treaties after utilization of their own
treaties. Public sector Insurance companies are adopting inter-company cession to utilize
other companies net retention. GIC arrange excess of loss protection from International
market.
REINSURANCE REGULATION
39
The placement of reinsurance business from the Indian market is now governed by
Reinsurance Regulations formed by the IRDA. The objective of the regulation is to
maximize the retention of premiums within the country
Placement of 20% of each policy with National Re subject to a monetary limit for each
risk for some classes
Inter-company cession between four public sector companies.
Indian Pool for Hull managed by GIC.
The treaty and balance risk after automatic capacity are to be first offered to other
insurance companies in the market before offering it to international re-insurers.
Not more than 10% of reinsurance premium to be placed with one re-insurer
Procedure to be followed for Reinsurance Arrangements as per IRDA
40
The Reinsurance Program shall continue to be guided by

a) Maximize retention within the country;
b) Develop adequate capacity;
c) Secure the best possible protection for the reinsurance costs incurred;
d) Simplify the administration of business
Every insurer shall maintain the maximum possible retention commensurate with its
financial strength and volume of business. The Authority may require an insurer to justify
its retention policy and may give such directions as considered necessary in order to
ensure that the Indian insurer is not merely fronting for a foreign insurer.
Every insurer shall cede such percentage of the sum assured on each policy for different
classes of insurance written in India to the Indian insurer as may be specified by the
Authority in accordance with the provisions of Part lV-A of the Insurance Act, 1938.
The reinsurance program of every insurer shall commence from the beginning of every
financial year and every insurer shall submit to the Authority, his reinsurance programs
for the forthcoming year, 45 days before the commencement of the financial year.
Within 30 days of the commencement of the financial year, every in surer shall file with
the Authority a photocopy of every reinsurance treaty slip and excess of loss cover note
in respect of that year together with the list of reinsurers and their shares in the
reinsurance arrangement.
The Authority may call for further information or explanations in respect of the
reinsurance program of an insurer and may issue such direction, as it considers necessary.
Insurers shall place their reinsurance business outside India with only those reinsurers
who have over a period of the past five years counting from the year preceding for which
the business has to be placed enjoyed a rating of at least BBB (with Standard & Poor) or
equivalent rating of any other international rating agency. Placements with other
reinsurers shall require the approval of the Authority. Insurers may also place
reinsurances with Lloyds syndicates taking care to limit placements with individual
syndicates to such shares as are commensurate with the capacity of the syndicate.
41
The Indian Reinsurer shall organize domestic pools for rcinsurancc surpluses in fire.
marine hull and other classes in consultation with all insurers on basis, limits and terms
which arc fair to all insurers and assist in maintaining the retention of business within
India as close to the level achieved for the year 1999-2000 as possible. The arrangements
so made shall be submitted to the Authority within three months of these regulations
coming into force, for approval.
Surplus over and above the domestic reinsurance arrangements class wise can be placed
by the insurer independently with any of the reinsurers complying with sub-regulation (7)
subject to a limit of 10 per cent of the total reinsurance premium ceded outside India
being placed with any one reinsurer. Where it is necessary in respect of specialized
insurance to cede a share exceeding such limit to any particular reinsurer, the insurer may
seek the specific approval of the Authority giving reasons for such cession.
Placement of 20% of each policy with National Re subject to a monetary limit for each
risk for some classes
Inter-company cession between four public sector companies.
Indian Pool for Hull managed by GIC.
The treaty and balance risk after automatic capacity are to be first offered to other
insurance companies in the market before offering it to international re-insurers.
Every insurer shall offer an opportunity to other Indian insurers including the Indian
Reinsurer to participate in its facultative and treaty surpluses before placement of such
cessions outside India
The Indian Reinsurer shall retrocede at least 50 per cent of the obligatory cessions
received by it to the ceding insurers after protecting the portfolio by suitable excess of
loss covers. Such retrocession shall be at original terms plus an over-riding commission
to the Indian Reinsurer not exceeding 2.5 per cent. The retrocession to each ceding
insurer shall be in proportion to its cessions to the Indian Reinsurer.
Every insurer shall be required to submit to the Authority statistics relating to its
reinsurance transactions in such forms as the Authority may specify, together with its
annual accounts.
42
Terrorism & Natural Calamities A Setback to the Reinsurance Industry

Throughout the insurance industry, it is not business as usual. The attacks on the World
Trade Center on September 11, 2001, sent shock waves through society and the business
community that will significantly impact the availability and cost of insurance for years
to come. The devastating floods, earthquakes, Hurricanes and other natural calamities
have added pain on every insurer and reinsurer
43
44
Total claims paid by all reinsurance companies in 2005 reached 15.951.878 million GEL,
which was 25,9 % of total income. The dynamic of loss according to the years has the
following structure:
45
On the chart you can see claims paid by insurance companies by years:
46
Some Important News on the Reinsurance Industry

.
Foreign reinsurers may get India access
Government May Allow Cos to Open Local Branches; No Move Yet To Allow PSU
Insurers to Go Public
The Economic Times 24/05/2005
THE government may allow foreign reinsurance companies to set up branch offices in
the country with certain regulatory restrictions, according to a senior finance ministry
official.
This is one of the areas, where there is a broader political consensus with respect to
foreign investment in the insurance sector, said joint secretary (banking & insurance)
GC Chaturvedi after a seminar here on Wednesday.
At present, foreign reinsurers are already allowed to set up representative offices in the
country. However, these outfits cannot underwrite business, which branches would be in
a position to do.
The proposal to allow foreign reinsurers is one of the 113 amendments proposed in the
IRDA Act and the group of ministers (GoM) looking into this has already met thrice. The
GoM is expected to meet again soon, he said. Mr Chaturvedi also clarified that there is no
move to allow public sector insurance companies to tap the capital market to meet the
fund requirement for their overseas expansion plans. The general insurance companies
have reserves of over Rs 1,000 crore, which was adequate to meet their overseas
expansions plan, he said. As for Life Insurance Corporation (LIC), the government has
given the corporation Rs 160 crore exclusively for its foreign business.
However, there could be some revisions to the norms for standalone health insurance
companies. There could be differential capital bases and the overall equity cap could be
brought down from Rs 100 crore to Rs 50 crore.
47
Earlier, speaking on the trends in the sector, PC James, member of IRDA, said that as
the economy is moving from an industrial economy to service economy, the need for risk
cover on various services is increasing, which, in turn, makes a strong case for more
liability products. Already in FY07, liability products have recorded the fastest growth,
he said.
New India plans mortgage insurance JV
NEW India Assurance (NIA), the country's largest general insurer by premium income,
plans to team up with General Insurance Corporation (GIC) and National Housing Bank
(NHB) to float India's first mortgage insurance company, report Atmadip Ray & Debjoy
Sengupta in Kolkata. NIA is in talks with potential partners in the mortgage insurance JV.
When contacted, NIA chairman and managing B Chakrabarti confirmed his company is
in discussions with other promoters on picking up stakes in the proposed JV. However, it
is undecided how much NIA will hold in the company. "A final decision is yet to be taken
as there are regulatory issues involving both Reserve Bank of India and Insurance
Regulatory & Development Authority, he said. GIC Housing Finance, a subsidiary of
the countrys only reinsurer GIC, is also slated to buy a tiny stake in the proposed
mortgage insurance company.
Global reinsurers capitalisation floor set at Rs 5,000 crore
09/11/2007 the Economic Times
INTERNATIONAL reinsurers, looking to start operations in India, may soon be able to

set up branches with a minimum capitalisation of Rs 5,000 crore. This forms part of a set
of amendments to the Insurance Act, 1938. The minimum capitalisation amount has been
linked to the existing capitalisation of Indias only reinsurer, General Insurance
Corporation (GIC).
The amendments to the Act are pending before Parliament. Once the amendments are
approved, international reinsurers will have legal and regulatory clearance to open
branches of their parent company to transact business in the country. The Insurance Act
48
only permits companies having a joint venture to sell products in India. Currently, only
26% FDI is allowed in reinsurance sector. A joint venture company should have a
minimum capitalisation of only Rs 200 crore.
Reinsurance enables insurance companies to offload their risks by placing part of the
cover with reinsurers. Global reinsurance companies, including Swiss Re and Munich Re,
are keen on setting up branches in India, instead of coming through joint ventures.
International reinsurers having branches in India will ensure that the liabilities of the
branches will be accountable to the parent company, Swiss Re India managing director
Dhananjay Date told ET. Most reinsurers are large enough to provide for claims arising
from the mega insurance covers provided by the general insurance companies. Stiff
capitalisation requirements of Rs 5,000 crore will ensure that only serious wellcapitalised international insurers will be able to enter the market, he added. On the
other hand, a joint-venture with Rs 200 crore would have been under capitalised and
would not be able absorb huge claim pay-out, Mr Date said.
The amendments to the Act also have provisions to recognise a society for
reinsurance. This will facilitate UKs Lloyd an entry into India. Lloyds is a society and
not a company that underwrites reinsurance risks.
Under free-pricing, international reinsurers are cautious about underwriting practices
adopted by domestic insurance companies. However, with insurance companies in India
being well-capitalised, it is increasing their capacity to retain some of the smaller risks.
As the sole reinsurer in the domestic market, GIC receives a 20% statutory cession
(20% of the premium) on each policy subject to certain limits. Hitherto, the policy for
international reinsurers was determined by concerns about retaining capital within the
country.
The omnibus insurance legislation is pending in Parliament since last year. The Left
parties have raised objections to several amendments, primarily the proposed hike in FDI
in the sector from 26% to 49%.
Govt. may cut reinsurance cap to 10%
02/01/2007 the Economic Times
49
AFTER getting their freedom in pricing, non-life insurers are set to experience freedom
in reinsurance the process where an insurance company buys cover to transfer some
risks out of its books.
Until now, insurance companies have to mandatorily transfer 20% of their risks and
consequently 20% of their premium income to the General Insurance Corporation (GIC),
which has been designated by the government as the national reinsurer. Moves are afoot
to bring down this compulsory reinsurance to 10% from April 2007. For insurers, this
would give them the ability to shop for best deals from international reinsurers. However,
for GIC, this would mean a loss of half of its captive business.
Industry officials say that public sector companies are likely to reinsure less since they
are well capitalised and in a position to retain risks. Private companies, with a smaller
capital base, are likely to continue to reinsure. However, they now have the choice of
buying cover from international reinsurers. GIC, on its part, will have to be more
proactive in marketing its reinsurance services to companies. The Corporation has
already become more proactive in trying to get reinsurance business from developing
countries and has opened offices overseas, including the Middle East. It has also sought
permission from the FSA in London.
Incidentally, no private player has come forward to set up a reinsurance company in
India even after liberalisation. This is because the economics of reinsurance supports
having a giant corporation in financial centre rather than distributing capital across
countries.
The concept of compulsorily passing on risks (or ceding risks) to a national reinsurer
was common in most countries in the past. With liberalisation, most countries have
withdrawn the requirement for compulsory cessions. The objection to the removal of
compulsory cession has been that this would result in flight of foreign exchange as
companies reinsure overseas, and secondly, policymakers felt that there was a need to
increase insurance capacity in India.
50
To ensure that there is no flight of capital; legislation has focussed on increasing

retention of risks in the country. While introducing the IRDA Act, the government had
assured Parliament that the level of retention of risks in the country would not go down
upon liberalisation. However, with the economy witnessing large inflows by way of
investment, capital outflows are not a major concern. The concept of a national reinsurer
was there in most countries. With liberalisation, most countries have done away with the
national reinsurer tag and allowed free competition in the market.
51
Case: I
Munich Re-In a Whirlpool?
Munich Re, the largest reinsurer in the world is facing a threat of getting trapped into a
vicious circle. Recently there has a downgrade in ratings by S&P that might lead to
another downgrade if the company resorts to inferior quality of business or less premium
rates. The business has been
Tough for the company due to the ripple effects of 9/11 attacks coupled by dismal
investment performance. Von Bombard has recently assumed the position of CEO and
has a daunting task of sailing the company out of this storm.
Munich Re, the worlds largest reinsurer has reported losses of $680 million in e first-half
of 2003 and its rating is downgraded by SAP from AA- to A+ resulting Munich Re the
lowest rated reinsurance company in the European region. The ratings downgrade was on
account of bad equity investments and its stakes in Allianz, HVB and Commerzbank,
whose performances were unsatisfactory. The company is facing a threat that this ratings
cut may be a trigger to get trapped in a vortex. Since the ability to attract new business is
reduced, a compromise either on quality of business or premium levels may lead to fall in
profits which may further lead to ratings downgrade. How will the new CEO Von
Bombards, take stock of this situation?
52
Munich Re - The History

The insurance industry was initially triggered by the rapid commercial activity in
Germany. Carl Theme started Munich Re in 1880 at a time when there was a sense of
disappointment for insurance and reinsurance companies in the country. The company
was started in two rented rooms with five employees and a share capital of three million
marks. After eight years of its commencement it was quoted in the stock exchange and its
share capital was increased to 4.8 million marks. The number of staff also kept rising. It
employed 55 people by 1890, 348 in 1900, 450 in 1914, 614 in 192O
The company faced its first tough time in April 1906 when an earthquake occurred in
California devastating the city of San Francisco. Around 3,000 people died and there was
a property damage to the tune of 500 million dollars of which, 11 million Gold mark
happened to be of Munich Re The prompt settlement of claims fetched Carl Theme the
complement, Theme is money instead of time is money from the clients This event
triggered the idea of reinsurance especially in. the US. It was the first company to prepare
set of terms and conditions for machinery insurance in 1900. In the 1930s, the companys
medical staff developed life insurance manuals by the help of which it was possible to
insure chronically ill who were considered uninsurable until then. In 1970, it created a
geo-sciences research group to analyse natural hazards covers from a technical point of
view. As of 2003, the company employs engineers and scientists from 80 different
disciplines meteorologists, geologists, geographers doctors, ships masters and experts
53
with a wide range of qualifications. Currently the company is the largest player in the
reinsurance segment with competitors such as Swiss Re and Berkshire Hathaway.
The Reinsurance Market
The origin of reinsurance can be traced to 14th or 15th century in marine insurance The
concept of reinsurance evolved when a single party found it difficult to insure high risks
involving large pay outs. In other words insurance for the primary insure is reinsurance. It
is mainly a tool to increase capacity enhance stability, protection against catastrophes,
obtain surplus relief to enable growth, gain underwriting ability and withdraw from
territory or line of business. Reinsurance is mainly classified under two categories;
facultative and treaty. A facultative contract is for a single risk and treaty is for multiple
risks of certain type. 0ver years, reinsurance industry has been handling various
catastrophes such of Hurricane Andrew and successfully paying the claims.
September 11, 2001 attacks at the World Trade centre had a big blow to insurance
industry including the reinsurers. The attacks resulted in insurance industry paying $40
billion as claims, two-thirds of which was paid by reinsurance industry. This setback was
coupled with the stock market losses trend following the attacks has forced many
reinsurers across the globe to revise their core business of reinsurance and withdraw from
businesses such as management, investment banking and also the lines business in which
they specialize. With the changed scenario the reinsurers cannot depend on investment
income in their tough times. Days when reinsurers could rely on cushion of investment
income, or seek new markets to make-up for the stage in their own are long gone
Reinsurers now need to focus on delivering better more consistent underwriting results in
their core markets.
54
A BusinessWeek article mentioned that, The pricing pressure is starting at top.

Reinsurers, the large entities such as Swiss Re and Munich Re that primary insurance
carriers buy coverage from to reduce risk, have upped their rates to recover capital
reserves depleted by large September 11 claims and stock marke6t losses. Another AON
survey report for the year 2003 mentioned the views of reinsurance buyers, who expect
that the softening trends, which emerged over the course of 2003, will continue. In the
same report, underwriters felt that slight softening will continue in some lines of business
but rates in others will be driven higher by contracting supply.
The Current Problem of Munich Re
The company is facing troubles on various fronts. Firstly, the investment losses have been
excessive. As quoted by The Economist , At the end of 2001 Munich Re had 33% of its
assets in equities; new, it has less than 10%, besides its stake in Hypo Vereins bank
(HVB), Munich Re owns one-fifth of Allianz, the company situated at its neighbour in
Koniginstrasse. Both holdings have lost more than 75% of their value in the past three
years.
In March 2003, the company announced reduction of its cross shareholding with Allianz
to about 15%. This was a step taken to strengthen the capital base of Munich Re, since
55
the performance of Allianz was not up to the mark. The press release from the company
said, The effect of reducing shareholdings on both sides will be that the respective
participations are no longer valued at equity; consequently, Munich Re will in future
book the dividend of Allianz instead of the proportional result for the year in its income
statement. Furthermore, the groups free floats and thus the weightage of their shares in
stock market indices will increase.
The news of Mr Hans-Jurgen Schnitzlers retirement on April 28, 2003 was delicate
considering the turbulent times of the company. Mr Schnitzler who is 62 has to retire as
per corporate Germany standards. The company made profits in the year 2002 only
because it sold 4.7 billion-worth of shares to Allianz. Un Mr Schjnzler the company
initiated a diversification strategy. It shares 25 ownership in HVB, the countrys second
biggest bank. It also Owns 10% of Commerzbank, One of its subsidiaries ERGO is
Germanys biggest primary insurer however it incurred a loss of 1.1 billion last year
mainly due to investments these circumstances when Mr Bernhard has to take over the
charge, there was daunting task ahead of him.
Following that the biggest blow came with the ratings downgrade by S&P on account of
weak profits and reduced capital base. The company in press release next day claimed the
downgrade to be unjustified. The company bragged of its AAA rating. A Business Week
article commented All the more so in the cloistered world of reinsurance, where billions
of dollars on corporate and private-risk coverage are guaranteed by a few lop firms. The
slightest slip in creditworthiness is a big blow, since it raises questions about the
underwriters ability to make good on claims when disaster This had put the company
into a vicious circle where the competitors had an edge over company due to ratings and
hence it was tough to obtain new business, since ratings have a large role to play in the
business of insurance and reinsurance Secondly, this would force Munich Re to lessen the
premium in order to retain clients. A London insurance broker rightly commented, The
big worry is that ratings cut can be the start of a vicious circle, you have to pay more for
business as a result, which means profits fall and your rating can get cut again.
56
Future Outlook
On July 10, 2003 Munich Re became the first nationwide reinsurer in China after
receiving the country-wide operating license from China Insurance Regulatory
Commission. This was an important move for Munich Re to enter into high growthoriented Asian market in testing times. Though the company had business relationships
with China through offices in Beijing, Shanghai and Hong Kong since 1956, this license
opens the door to an opportunity of an industry that has a double-digit growth rate.
With this backdrop the new CEO has the challenge to bring the company out from the
vicious circle and continue its image of the largest reinsurer in the world. At the time of
succession of CEO the issues confronting the new CEO are, how to come out of the lossmaking investments of Munich Re at Allianz, HVB and Commerzbank? How to retain
the existing customers without straining profits? How to attract new business despite the
57
ratings cut? And finally, how to win the AAA rating by S&P, which it used to enjoy?
58
Case: I I
Swiss Re: Expansion in Asia
Swiss Re is one of the leading global players in the market. The company has a strong
history of profitability that was only affected by the claims related to 9/1l. The company
is in the expansion spree in Asia particularly in China, India and Japan. It has a liaison
office in all these countries and has got a branch license in china and Japan. Swiss Re is
currently lobbying for obtaining a branch license in India as well. After starting of
business, the countries will get access to the global capital and for Swiss Re its a new
market added with diversification of risks.
Swiss Re was founded in 1863 at Zurich, It is one c f the leading reinsurers of the world.
Currently, it does business from over 70 offices in more than 30 countries and has on its
rolls around 8,100 employees. The company provides risk transfer, risk management,
alternative risk transfer (ART) and asset management services to its global clients
through its three business groups property and casualty; life and health; and financial
services. The gross premiums written by the company in the financial year 2002
amounted to CHF 32.7 billion. The rating of Swiss Re from Standard & Poors is AA,
Moodys is Aal, and AM Best is A+ (superior). It is a public listed company and the
shares are being traded in the Swiss exchange.
Brief History
Swiss Res incorporation was triggered by a major fire on 10-11 May 1861 when 500
houses got burnt and 3000 people became homeless. The invade insurance cover among
the households was highlighted at that point of time provide more effective means of
coping with the risks posed by such developed the Helvetia General Insurance Company
in St. Gall, the Schweitzer Kreditanstalt (Credit Suisse) in Zurich and the Basler
Handeisbank founded the Swiss Reinsurance Company in Zurich with a capital of six
Swiss Francs. The fire also happened to be the motivation behind the companys fast
growth in the initial years after its formation. Initially Swiss Re offered fire, marine
reinsurance and later on added life insurance after two years business in 1880.
59
In 1906, the company suffered one of its biggest losses after the earthquake San
Francisco. Swiss Re opened its overseas branch in the United States in its first step to
overseas business. The company was also affected by the Titanic on 14/15 April 1912. It
acquired major shareholding in Mercantile General in 1916 and acquired Bavarian Re in
1923. After the World War II was a season of economic boom. During the period, lot of
developments took with regard to Swiss Re. In the same period Swiss Res business
presence increased in the United States, Canada, South Africa and Australia. An advisory
committee called, Swiss Re Advisers Limited was found in Hong Kong. In 1959, the corn
premium income crossed one billion marks with 1,043 million Swiss Francs.
In 1977, Swiss Re acquired 94% shares of Switzerland General Insurance Company Ltd,
Zurich. Swiss Re started selling its majority shareholdings in insurance companies from
1994. It merged with Union Re in 1998 of which it acquired majority stake holding in
1988. In 2001, Bavarian Re was made as Swiss Re Germany and Swiss Re restructured
itself in making three business groups at the corporate centre.
Swiss Re and the Impact of September 11
Swiss Re resulted in loss for the first time in its history of 138 years of profitability in
2001. This was mainly due to the impact of huge pay outs of September attacks. Where
the firm reported profit of 2.97 billion CHF in 2000, it reported loss of 165 million CHF
in 2001 and 9l million in 2002. The pay outs arising from September 11 attacks amounted
to CHF 2.95 billion. Chief executive Walter Keelhauls said in an interview, Despite the
worst year ever for insured losses, Swiss Re strengthened its position during 2001 and is
now well placed to capitalize on improving markets and achieve superior results in the
coming years. At the end of 2001, Swiss Res shareholders equity amounted to CHF
22.6 billion (USD 13.6 billion) and the total balance sheet stood at CHF 170 billion (USD
02.4 billion).
In the first-half of 2002, Swiss Re profits came down to 50.91 million from 582
million corresponding to the previous year. On this Mr. Kielholz said, however, in tough
times experience tells us the opportunities are greatest for the strongest players. I believe
this remains so now for Swiss Re.
60
Expansion in Asian Countries

Swiss Re has been eying Asian market for long, specifically Japan, China and India and
has taken significant steps to pursue the same. It has got entry into Chinese and Japanese
market and is lobbying for an entry through branch network in India. In early 2002, Swiss
Re relocated its Asian headquarters from Zurich to Hong Kong. This move was strategic
and made in order to oversee and manage 14 offices in Asia. The chief executive of Swiss
Res Asia division, Mr Pierre Oaendo, said The move to Hong Kong is designed to
expand Swiss Res market leadership and to meet the current and future requirements of
the Asian insurance industry. We chose Hong Kong as our Asian huh because it has a
strong infrastructure, is the gateway to China, is located centrally within Asia, and is
already home to a number of other Swiss Re operations. There is also the availability of
insurance and other financial professionals here, he added.
China
Swiss Re opened its representative offices in Beijing and Shanghai in 1996 and 1997
respectively. In August 2002, Swiss Re received an authorization from China Insurance
Regulatory Commission (CIRC) for operating a branch for both property casualty as well
as life reinsurance. According to Swiss Re officials, this is a step towards obtaining a full
license and will enable them to establish local services within China in order to support
and contribute to the growth of countrys insurance and reinsurance industry and
economy per Se. Insurance market in China steadily growing and the growth in premium
income has been 23.6% over the 10 years. Foreign insurance companies have increased
from two in 1992 to date.
Commenting on this important approval, Mr Pierre Ozendo, chief executive Swiss Res
Asia Division, said Swiss Res close relationship to the China insurance industry is an
excellent foundation upon which to build as China to meet the growing needs of its
economy and its people in protecting live property as well as business and asset growth.
Swiss Re also believes in tile social growth of the Chinese economy and mat. of fact it
has set up a research centre on natural catastrophe exposure insurance risks together with
the Beijing Normal University in Beijing in 1999. The research centre is dedicated to
61
collecting and interpreting Nat Cat data, developing risk measures and maintaining close
ties to other research Institutions and state organizations of interest. The main objective
lies in developments of models for assessing risks and respective economic and
insurance.
On December 19, 2003, Swiss Re officially opened the branch office in Beijing The
Chinese insurance market today is demonstrating exciting growth. I delighted that Swiss
Re has received authorization to open this branch and now participate directly in tile
development of the market, said Swiss Re CEO John Comber, on the occasion.
Japan
December 2003, Swiss Re received a branch license to provide reinsurance service in
Japan for both property/casualty as well as life and health domains. Swiss happsens to be
the first leading global reinsurance player to obtain a full license to run a branch in Japan.
We are delighted to receive approval for our branch license Japan which will strengthen
our ability to service our portfolio of valued clients Japan, stated Swiss Re CEO, John
Comber on this occasion. Companys relationship with Japan dates back to 1913
according to Swiss Re officials. The company runs a services company in Japan since
1999 in order to provide global business expertise to local players. Apart from this, the
company was holding a representative office in Japan since 1972. Swiss Re though
received non-life insurance license intends to extend services limited to reinsurance only.
India
Swiss Re has presence in India from over 70 years. Swiss Re through Swiss Re Services
India Private Limited offers clients exclusive and specialized risk management services,
international technical expertise and other support services. It also has a wholly-owned
subsidiary in India, Swiss Re Shared Services (India) Private Limited incorporated in
2000 for providing back office administration support. The canter will handle contract
administration, claims administration and reinsurance accounting support for all Swiss Re
offices in Asia.
Indian regulations allow foreign reinsurers to set up a reinsurance company with an
Indian partner and minimum capital of Rs. 200 crore where foreign participation is
62
restricted to 26%. Swiss Re has been urging Indian regulator for de-linking reinsurance
from direct insurance regulations and allowing reinsurance branching. Calling for an end
to the joint venture requirements currently imposed on foreign reinsurers. Mr. Davinder
Rajpal, Swiss Re Head of India, Turkey and Middle-East, pointed out the key benefits
available from allowing wholly-owned reinsurance branches:
A full range of technology know-how and services, available locally to serve Indias
increasingly complex risk landscape;
Local insurers can access reinsurers global balance sheet;
Increased security and reduced credit risk due to the regulators direct supervision of
reinsurance branches; and
Encourages more foreign direct investment to India.
Swiss Re expects Asian market to grow substantially in the coming years and says, In
Asia, sound economic fundamentals will continue to support robust insurance business
growth in 2004. Life insurance will in particular benefit from increasing affluence and
rising risk awareness. Compared to more mature markets, emerging Asia, in particular
China and India will remain highly attractive international insurers.
Future Outlook
Swiss Re has been the first entrant in all the three emerging markets of Asia. The
company is backed by strong fundamentals, financials and global expertise. It possesses
all the prerequisites to be a market leader in these countries. The presence of Swiss Re
has been long in these nations and the representative offices had been opened at the right
time. The major challenge for Swiss Re as of now especially in India is the regulatory
barrier. So far Swiss Re is the first and only global player involved in reinsurance
services in all the three markets. The company has already proven its expertise for long in
the global market and the presence has to be increased in these liberalized markets only
by the passage of time.
63
Case: I I I
General Insurance Corporation of India
This case provides the history of General Insurance Corporation of India (GIC since
nationalization. GICS role has been significant in the Indian insurance industry and it is
currently the sole national reinsurer. GIC is also aspiring to be a global player in
reinsurance. It is evolving itself as an effective reinsurance solutions partner for the AfroAsian region. In addition to that, it has also started leading reinsurance programmes for
several insurance companies in SAARC countries, South East Asia, Middle East and
Africa.
Insurance has always been a growth-oriented industry globally. On the Indian scene too,
the insurance industry has always recorded noticeable growth via-a-via other Indian
industries. In 1850, the first general insurance company, Triton Insurance Co. Ltd., was
established in India and the shares of the company were mainly held by the British. The
first Indian general insurance company, India s Mercantile Insurance Co. Ltd., was set up
in 1907. After independence, General Insurance Council, a wing of Insurance Association
of India, framed a code c conduct for ensuring fair conduct and sound business practices
in the area general insurance. The Insurance Act was amended and tariff advisory
committee was set up in 1968. In 1972, general insurance industry was nationalized
through the promulgation of General Insurance Business (Nationalizations) Act. Around
55 insurers were amalgamated and general insurance business undertaken by the General
Insurance Corporation of India (GJC) and it subs Oriental Insurance Company Limited,
64
New India Assurance Company Limited, National Insurance Company Limited and
United Insurance Company Limited.
The Indian insurance industry saw a new sun when the Insurance Regulatory. And
Development Authority (JRDA) invited the application for registration for insurers in
August, 2000. General Insurance Corporation of India and subsidiaries has been the
erstwhile monarch of non-life insurance for almost three decades. After donning the role
of the national reinsurer, by GIC, delink of its subsidiaries and entry of foreign players
through joint ventures have changed the outlook of the whole general insurance industry
and forced GIC to enter arena of competition.
GIC and its four subsidiaries functioned through a huge network of 4,167 offices spread
across the country. The main customer interface for these units were in agents,
development officers and employees at branch, divisional and region. Offices in various
parts of the country. The total workforce of GIC and its subsidiaries was around 85,000.
GIC has made a huge contribution to the overall development of the nation, through
investments in the socially-oriented sectors. The Government of India had entrusted to,
GIC, the administration of various social welfare schemes, such as personal accident
insurance and hut insurance schemes operated all over the country.
In addition to this, its joint ventures in the form of GIC mutual fund and GIC housing
finance have contributed not only to the development of the nation but also to the income
growth of the corporation. GICs net premium and investments stood at Rs.1,710.26
crore and Rs.4,556.5 crore as of March 31,1999. During the same period, the capital and
funds of the Corporation stood at Rs.2,914.64 crore.
History - How was it formed?

The general insurance industry was nationalized through General Insurance Business
Nationalization Act, 1972 (GIBNA). The Government of India took over the shares of 55
Indian insurance companies and 52 insurance companies carrying on general insurance
business. GIC was formed in pursuance of Section 9(1) of GIBNA. Incorporated on
65
November 22, 1972, under the Companies Act, 1956, GIC was formed for the purpose of
superintending, controlling and carrying on the business of general insurance. After the
formation of GIC, the central government transferred all the shares held by it of various
general insurance companies to GIC, Thus, after the whole process of mergers and
acquisitions in the insurance industry, the whole business was transferred to General
Insurance Corporation and its four subsidiaries.
Among its four subsidiaries, National Insurance Company was incorporated in the year
1906. As a subsidiary of the GIC, it operates general insurance business in India with its
head office located at Kolkata. New India Assurance Company was formed in the year
1919 and operates general insurance business in India with its head office at Mumbai.
New India Assurance Company is considered as the most successful company in the field
of general insurance. Oriental Insurance Company was established in the year 1947 and
its head office is located in New Delhi. United India Insurance Company operating its
general insurance business with its head office at Chennai.
What Went Wrong?

General Insurance Corporation recorded a net premium of $1.3 billion in the year 199596. Its claim settlement ratio was 74% higher than the global average of 10%. So, what
went wrong for this public sector monolith? GIC and its subsidiaries faltered, when it
came to customer satisfaction. Large scale of operations, public sector bureaucracies and
cumbersome procedures hampered the progress of not only GIC, but also LIC (Life
Insurance Corporation of India). The huge staff of agents of GIC and its four subsidiary
companies failed to penetrate into the rural hinterland to sell general insurance whether it
was crop insurance or any other form of personal line insurance. As evident from the
condition of farmers in the country, GIC has failed in its object to provide insurance
cover to the needy, which really required the much-needed financial security. The
nationalized insurers, both GIC and LIC employ almost half-a-million employees. They
66
are the highest paid but still the both organizations suffer from low productivity,
corruption, indiscipline and total ignorance of the basic principles of the insurance
business. GIC suffered due to corruption within its own specific business divisions motor
insurance and mediclaim policy. Collusion between the surveyors and customers also
bled GIC, leading to low morale among the employees and public discontentment
The main reason for such a pathetic condition lies within the management of these public
sector companies. The management of these units is strongly dominated by employee
unions, which transformed the insurance sector to a class business from a value-based
company. The domestic insurance companies, meeting their social objectives of going
into the deepest interiors of the country lagged behind in meeting customer expectations
in products and services.
Malhotra Committee
As the process of liberalization started from the year 1991, reforms were targeted various
sectors of the economy. In the same league, insurance sector had to wait almost nine
years before, reforms were implemented. The whole process starts with the setting up of
the Malhotra Committee in 1993, headed by R N Malhotra former governor of Reserve
Bank of India. Although the achievement of LIC CIC in spreading insurance awareness
and mobilizing savings for national development and financing core social sectors was
acknowledged, the committee gave a concise report on the Indian insurance industry
dominated by the public sector. l report indicated that both the LIC and GIC were
overstaffed and faced no competition at all. Thus, consumers were deprived of wider
range of products efficient service and lower-priced insurance products.
The report indicated that net premium income in general insurance hush had grown from
Rs.222 crore in 1973 to Rs.3,863 crore in 1992-93. In addition this, investments also
increased from Rs.355 crore to Rs.7,328 crore over the said period. GIC also acquired
high reputation in the international reinsurance market. But there was the other side of
67
the coin. Excessive control coupled with absence competition led to stagnation of both
the public sector units hampering the improvement and operational efficiency.
Insurance industrys funds were mainly invested in government-mandated investments
with low yield, which affected the financial performance of the insurance c This led to
high rates of insurance premium but low returns on savings invested in insurance. In
addition to that, due to absence of competition, there was laxity among the insurers to
perform well and improve customer satisfaction.
Thus, Malhotra Committee made a number of recommendations for the well-being of the
Indian insurance industry. The committee recommended proper training of insurance
agents, adequate pricing of insurance products and periodic review of premium rates.
Malhotra Committee recommended for establishing a strong and effective authority for
the insurance sector similar to the Securities and Exchange Board of India (SEBI). In
addition to this, the committee also recommended that all the four subsidiaries of GIC
should function as independent companies and GIC should cease to be the holding
company.
Malhotra Committee Report submitted in 1994 gave various recommendations for the
insurance sector, such as capital investment in the insurer company should be increased
to 100 crore for life insurance business or general insurance and Rs.200 crore for the
reinsurance business. It also recommended that the share of the foreign investment to the
total investment should not be more than 26% of the share capital in the insurance joint
venture company.
Recommendations Specific to GIC:
The government should take over the holdings of GIC and subsidiaries, so that they can
act as independent corporations.
GIC and subsidiaries are not to hold more to a 5% in any company. The current
holdings of the companies should be brought down to the specified level over a period of
time.
Considering the above recommendations, the central government enacted, The
Insurance Regulatory and Development Authority Act, 1999. The Act is applicable to all
68
states except Jammu and Kashmir, for which this Act is applicable with modifications
made by the government.
IRDA Act
The Insurance Regulatory and Development Authority Act, 1999, is the product of a Bill
submitted to the Parliament in December 1999. Insurance Regulatory and Development
Authority Bill was passed on December 2, 1999. The IRDA Bill opened the Indian
insurance sector to the rest of the world, through the entry of competitive players in the
insurance sector and the inflow of long-term capital. The IRDA Bill provided for the
establishment of Insurance Regulatory and Development Authority, as an authority to
protect the interests of the holders of insurance policies and for the regulation and
promotion of Indian insurance industry. The IRDA Act provides statutory status to the
regulator. The IRDA Bill has amended the Insurance Act, 1938, the Life Insurance Act,
1956, and the General Insurance Business (Nationalization) Act, 1972. The Bill allowed
69
foreign participation in the insurance sector. The foreign companies could have an equity
stake up to 26% of the total paid-up capital.
IRDA Act also fixed minimum capital requirement for life and general insurance at
Rs.100 crore and for reinsurance firms at Rs.200 crore. The minimum solvency margin
for private insurers is Rs.500 million for life insurance companies, Rs.500 million or a
sum equivalent to 20 per cent of net premium income for general insurance and Rs.1
billion for reinsurance companies. The Authority is a ten member team consisting of a
chairman, five whole-time members and four part-time members.
Breaking Up of GIC
The delinking of the four national subsidiaries of GIC was recommended by the Poddar
committee. The committee also recommended transforming GIC as a national re On
August 7, 2002, the President of lndia later gave his assent to the General Insurance
Business (Nationalization) Amendment Bill, 2002 and the Insurance (Amendment) Bill
2002. The General Insurance Business (Nationalization) Amendment Act, 2002, amended
the General Insurance Business (Nationalization) Amendment Act, 1972, and delinked
the General insurance Corporation (GIC) from its four subsidiaries the National
Insurance Company Ltd, the New India Assurance Company Ltd, the Oriental Insurance
Company Ltd and the United India Insurance Company Ltd. Thus, as per the amendment,
General Insurance Corporation was required to carry on reinsurance business, as the
national reinsurer of the Indian insurance industry.
The subsidiaries were asked to increase their equity base to Rs.100 crore, to comply with
the regulations of IRDA. All these public sector companies had an equity base of Rs.40
crore previously. The shares of these companies previously held by the dC, were
transferred to the government. According to officials, hiking capital base is a part of an
overall effort to restructure the entire nationalized general insurance industry. The
restructuring was aimed at providing autonomy to public sector companies.
70
GIC the National Reinsurer

Reinsurance business in India dates back to the 1960s. After independence there rapid
development of the insurance business, hut there was negligible presence reinsurance
companies in India. Thus, the domestic requirement of reinsurance was netted mostly
from foreign markets mainly British and continental. As undertaking reinsurance business
by Indian companies meant huge outflow of foreign exchange and in 1956 Indian
Reinsurance Corporation was established. It formed as a professional reinsurance
company by some general insurance companies. The company received voluntary quota
share cessions from member companies. Later another reinsurance company, the Indian
Guarantee and General Insurance Co. was formed in 1961. With this set up, a regulation
was promulgated which made it statutory on the part of every insurer to cede 20% in Fire
and Marine Cargo, 10 % in Marine hull and miscellaneous insurance, and five per cent in
credit solvency business.
Prior to nationalization, there were 55 non-life domestic insurers and each company had
its own reinsurance arrangement. After nationalization, all these companies were brought
under the agents of General Insurance Corporation and four subsidies were formed, with
GIC as the holding company. With this backdrop, it has been a quantum jump for the
Indian reinsurance market, with GIC being established as the national reinsurer. Earlier
insurance companies had to depend on foreign markets, but now after the IRDA Act has
been passed, GIC has focused on competing with the best in the world.
GICs reinsurance business can be divided into two categories; domestic reinsurance and
international reinsurance. On the domestic front, GIC provides reinsurance to the direct
general insurance companies in the Indian market. GIC receives statutory cession of 20%
on each and every policy subject to certain according to the current statute. It leads many
of domestic companies programs and facultative placements. As the sole reinsurer of the
d insurance market, GIC s capacity for each class of business on treaty and facultative
business is given below:
71
GIC is also emerging as an international player in the global reinsurance evolving itself
as an effective reinsurance solutions partner for the African region. In addition to that, it
has also started leading reinsurance programmes several insurance companies in SAARC
countries, South East Asia, Mid Africa. GIC provides the following capacities for treaty
and facultative the international market on risk emanating from international market 1
merits of the business.
General Insurance Corporation, as the Indian Reinsurer, completed year on March 31,
2002. Although, there has been an increasing presence in international markets, the focus
of the Corporations operations continue domestic market, as it constitutes around 94% of
72
its total portfolio. The Corporation increased to Rs.10,378.84 crore from Rs.7,773.67
cr0
March 31, 2002. Similarly the total investments of the Corporation stood
Rs.7135.83 crores as against Rs.6, 345.33 in the previous year. The total investment
income of the corporation was Rs.961.80 crore as against Rs.873.40 crore in the previous
year and gross direct premium income of GIC for the year amounted Rs.311.57 crore.
According to industry sources, General Insurance Corporation (GIC) is targeting
significant growth for its inward foreign reinsurance business. The reinsurer is planning
to open its branch in Dubai in the near future. The reinsurance business
the Middle East region targeted by GIC ranges between Rs.3-5 million. Around 23% of
the total inward business for GIC comes from the Middle East countries. In addition to
that GIC is planning to establish its presence in London, Moscow, China, Korea, and
Malaysia. In 2002, GIC floated Tarizlndia in Tanzania through Kenlndia, which is a joint
venture with Life Insurance Corporation. At present it is also looking
a strategic partnership with African reinsurance major, East Africa Re.
73
On the domestic front, the Indian Reinsurer, plays the role of reinsurance facilitator for
the Indian insurance companies. The Corporation continues to act as Manager of the
Marine Hull Pool on behalf of the insurance industry. The Corporations reinsurance
program is designed to fulfill the objectives maximizing retention within the country,
developing adequate capacity, security the best possible protection for the reinsurance
costs incurred and simplifying it administration of business.
The Present Scenario

General Insurance Corporation has been well adapting itself to the changing reforms
scenario. To focus itself on the reinsurance market both domestic and international, it has
taken various decisions to support its new corporate vision. I January 2004, GIC has
decided to exit its mutual fund arm, GIC Mutual Fund, so to focus on core reinsurance
operations. The fund had been constantly underperforming for the last few years. In 2002
-2003, there has been whopping increase in the foreign inward reinsurance premium at
Rs.600 crore. This increase has pushed the total reinsurance premium to over Rs.3, 800
crore. The India reinsurer is willing to write more risks in the domestic market. The
underwriting, losses fell below the Rs.500 crore-mark. Though the severe drought, took
its toll cii GICs underwriting with agricultural losses zooming to Rs.400 crore in 200203. The claims ratio reduced during the year from 94 to 86%. Though the quantum o
foreign inward premium is low in the total premium income, the increase in it: share over
the last one year is significant. In 2002-03, the share of foreign premiun has been over
15% compared to just 6% in the previous year.
International credit rating agency, A M Best, has given A (Excellent) rating tc the
corporation indicating its financial strength. The rating reflects not only th Corporations
excellent financial position and conservative investment portfolio but also recognizes its
leading position in the global insurance market. General Insurance Corporation has
formulated plans to capitalize its strengths and capabilities in the international market and
consolidate its operations in India to provide requisite expertise and technical skills to the
74
domestic players. Thus, we can conclude that our National Reinsurer has the requisite
and inherent capability of meeting the future challenges and is ready to make strenuous
efforts to achieve its corporate vision of becoming leading international reinsurer in the
years to come.
75
LIMITATIONS OF REINSURANCE
1
ADMINISTRATIVE
COMPLEXITY:
It
increases
management
expenses
substantially. As special risks are involved, i.e. with a high hazard level, the ceding
insurer has to seek and obtain sufficient reliable protection through international
reinsurance. This increases its expenses to a great extent since, in general, it has to
contact specific reinsurers located in different countries, requesting their reinsurance
cover and providing full information on the risk in question. It also takes longer to
undertake this work.
2 Lack of agility: since these are individual transactions, many of which are
extraordinarily complex, it is not always possible to access acceptances with the desired
speed. In fact, to the extent that delays arise, the cadent is able to compare the levels of
service offered competing reinsurers in terms
of speed of response.
3 Lower levels of commission: the increase in the insurer's administrative costs is

accentuated because the commission that the reinsurer normally pays for facultative
cessions is normally lower than that available under obligatory treaties. This is due to the
technical instability they represent and to the shorter term reinsurer/reinsured relationship
with facultative reinsurance.
4 Dependence: given the reinsurers faculty to accept the risk or not, it is necessary to
have full confirmation of their support before issuing the cover document (policy).
76
CONCLUSION
With the ousters of such terrorist attacks, calamities and stiff competition the reinsurers
have to fight with each other to grab their share of premium market share this will be
more stiffer and difficult in the times to come.
Determining when a ceding insurer's cause of action for breach of contra ct accrues
sounds like a simple task, but it is not. The courts have crafted a test recognizing that a
demand for payment followed by a reasonable amount of time to consider the demand
must occur before the ceding insurer's claim of breach of contra ct can begin to run. But
the test does not allow the ceding insurer to sit on a claim for an unreasonably long time
without demanding payment.
If a reinsurer does not pay a reinsurance claim, the ceding insurer must act timely to
avoid its claim being barred by the statute of limitations. The trick is figuring out when
the clock starts to run.
77
BIBLOGRPHY
Books
Reinsurance Concepts and Cases Abhishek Agrawal, ICfai Press
Practice of Reinsurance in UK
Reinsurance IC-85, III
Newspapers, Magazines & Journals
The Economic Times
The Times of India
Business Standard
Business Today
Business line
Websites
http://en.wikipedia.org /wiki/Reinsurance
http://www.scor.com/www/index.php?id=16&L=2
http://www.allbusiness.com/management/193921-1.html
www.irdaindia.org
www.insuranceinstituteofindia.com
www.google.com
www.indiainfoline.com
http://www.generalinsurancecouncil.org.in/
78
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UNIVERSITY OF MUMBAI

NAME: FATEHVANSHIKUMAR RAMESH SONKAR

sponsoring me to undertake project. I am thankful to the

providing valuable suggestions and guidance during the

NAME: FATEHVANSHIKUMAR RAMESH

ORIENTAL EDUCATION SOCIETYS

SANPADA COLLEGE OF COMMERCE &

fulfillment of the curriculum of Third year of bachelor of commerce in

IMAGE AND SIGNFICANCE OF RUPAY LOGO

BACKGROUND FORMING OF RUPAY CARD

HOW IT COME INTO EXISTANCE

OBJECTIVE OF RUPAY CARD

RUPAY CARD FEATURES

RUPAY CARD ACQUIRING BANKS

KNOWN YOUR RUPAY CARD

IMPORTANT INFORMATION ON USAGE OF

HISTORY OF INSURANCE INDUSTRY

RESEARCH AND METHODOLOGY

Individual risk review.

No individual risk scrutiny by the reinsurer.

A profit is expected by the reinsurer in the A long-term relationship in which the

measured and adjusted over an extended

Adapts to short-term ceding philosophy of period of time.

Less costly than per risk reinsurance.

A contract or certificate is written to One contract encompasses all subject risks.

Reinsurance Proprotional and Non-Proprotional: Both treaty and facultative

constraints of the applicable standards for financial reporting). Financial reinsurance is

Basis of Insurance and Need for Reinsurance

Good Reinsurance Management

Proper Retention Policy

THE REINSURANCE MARKETS

The United Kingdom

The Continent of Europe

available to continental based underwriters when URZvIAs European market strategy

The United States of America

America). BRMA is made up of leading US reinsurance brokers and broker orientated

The Far East

There must be an insurable interest in the risk.

MARKET SHARE OF REINSURERS

Worlds Top 10 Reinsurers

Net premiums written

Berkshire Hathaway/Gen Re Group

Everest Re Group Ltd.

Transatlantic Holdings Inc.

ACE Tempest Reinsurance Ltd.

The growth of insurance premium by years is shown on the following chart:

General Insurance Corporation

of India (GIC) has assumed the role of

market. It provides treaty and facultative

Procedure to be followed for Reinsurance Arrangements as per IRDA

The Reinsurance Program shall continue to be guided by

Terrorism & Natural Calamities A Setback to the Reinsurance Industry

Some Important News on the Reinsurance Industry

09/11/2007 the Economic Times

INTERNATIONAL reinsurers, looking to start operations in India, may soon be able to

To ensure that there is no flight of capital; legislation has focussed on increasing

Munich Re - The History

A BusinessWeek article mentioned that, The pricing pressure is starting at top.

Expansion in Asian Countries

History - How was it formed?

What Went Wrong?

GIC the National Reinsurer

The Present Scenario

3 Lower levels of commission: the increase in the insurer's administrative costs is