Come April, the premium paid for fire and engineering and marine insurance, among other general insurance products is set to increase by around 15-20 per cent. With the reinsurers tightening the grip on competition-crazy general insurance companies, the prices are set to rise, says Yogesh Lohiya, chairman and managing director of General Insurance Corporation of India (GIC Re), the government-owned reinsurer, in an interview with Financial Chronicle’s Sneha Shah. Excerpts:

The annual renewals of reinsurance contracts are coming up. How do you see movement in pricing?

With de-tarrifing, prices are as low as 80-90 per cent of older tariffs; profitability for general insurance companies has taken a hit. With low margins, companies are doing business at the cost of others (reinsurer). Some companies are keeping retention (the amount of risk that is reinsured) as low as 10 per cent and are earning commission out of it. Because of this, we are not getting due share of the premium, while we continue to pay out huge claims. We want to see discipline in the market in terms of pricing. We have told all companies to correct the pricing mismatch. With this, there will be 15-20 per cent price correction in April renewals.

What are the changes that you are expecting in FY10-11?

The international rating agencies want us to maintain a healthy combined ratio of 90 per cent as compared with the present combined ratio of 103 per cent. (Combined ratio is a measure of profitability used by an insurance company to indicate how well it is performing its daily operations). We want to reduce the combined ratio by 13-15 per cent in the next financial year. We have tightened certain conditions for the companies and only those companies that are showing good results, less of incurred claims ratio and less of losses will get better pricing from us.

What type of tightening will that be?

Apart from being in the insurance business, companies reinsure a part of their huge risk with other insurance companies under inward reinsurance and not co-insurance. These risks cumulatively come to GIC and hence, we end up having more exposure than those individual companies. We have asked companies to keep such treaties out of the reinsurance they cede with us. We want to cede such risks on a case-by-case basis and price it differently.

How has FY10 been for GIC and what growth you are aiming for next year?

We have seen healthy growth of 11 per cent in the present financial year, which was mainly driven by our international business. The share of our international business has gone up to 42 per cent of our total revenues in financial year 2010, against 38 per cent a year ago. We are expecting to increase the share of international business to 50 per cent by next year. Overall business is expected grow at 10-15 per cent in financial year 2011.

How will you ensure such high growth in international business?

The pricing in the international market is better than pricing in the domestic market. Also losses are manageable. We have applied for opening up an office in Kuala Lumpur in Malaysia after which we eye to open one in Johannesburg, South Africa. GIC Re has also tried to venture into all those programmes that were abandoned by established western reinsurers in the Gulf and South Africa.