Competition forces Munich Re to lie low

MUMBAI: Reinsurance giant Munich Re has decided to lie low in India as it expects intense competition among general insurance companies to keep rates at an unprofitable level. The company has said competition in India was more intense than other markets where pricing was freed as detariffing has coincided with the entry of several new companies.

���Our business in India for the time being is very limited. This has nothing to do with capital requirements but because insurance rates for consumers went down dramatically after detariffication and have reached a level when the losses cannot be paid out of the premium,��� said Helmut Stadlberger, senior executive for Japan, Korea and the Indian subcontinent.

According to Alexander von Borries, head of risk management at Munich Re, the new capital requirements would impact Indian companies indirectly as reinsurers would be required to hold additional capital. In a presentation to Indian insurance companies and the regulator, he said Solvency II would have prevented events that led to the collapse of global insurance giants.

Mr Stadlberger said the company chose to reduce exposure in India as under current rates Munich Re cannot generate the required return on the capital that it has to keep aside. ���Nevertheless, we have managed to do some business but not to the extent that we would like to do or hope to do,��� he added.

According to Mr Stadlberger, it is not possible to forecast how long the situation will last in India, based on experiences in other markets. ���It is not possible to make a comparison with other markets because in India, along with detariffication, there is another situation (which has kept rates down).

There are a lot of new companies ��� new joint ventures ��� which have resulted in competition being substantially more here compared with other markets where there has been detariffication,��� he said. He said that while primary insurance companies were unlikely to raise rates, recent incidents like the fire at the Indian Oil depot may compel reinsurance companies to relook at their terms and conditions.

According to Sanjib Chaudhuri, the India representative for Munich Re, the feedback from the annual gathering of reinsurers worldwide in Monte Carlo was that insurance rates were unlikely to harden. Munich Re has, however, been using its excess capital to buy back shares.