GIC Re to issue catastrophe bonds in international market

MUMBAI: GIC Re will be the first Indian company to float catastrophe bonds in the international market as it looks to trim recent losses and raise money at a lower rate. The country’s national reinsurer will issue catastrophe bonds in the United States to cover risks arising out of natural disasters like earthquakes, floods and tsunami.


“We have got board approval to raise funds through Cat bonds. Now, we are in the process of hiring a consultant,” said AK Roy, chairman, GIC. “Our outgo will be less if we pay bondholders.”

The bonds are generally priced 200 basis points above the 10-year US treasury yield. The price offered on Cat bonds is higher than corporate bonds as they carry junk status and investors run the risk of losing their entire sum. Roy said the US market has a good appetite for these bonds. GIC plans to raise money and keep it in a trust account.

If there’s a catastrophe, the money will be used to pay for the claim. But there’s no room for such products in India. “Indian market has not tasted this kind of a product,” said Roy, adding, “We do not know whether there will be any takers here.”

According to the Swiss Re Cat Bond Price Return Index, Cat bonds have returned 9.09% in first nine months till September 30, this year. Large global reinsurance companies like AXA, Swiss Re issue Cat bonds to reinsure against catastrophes. Also, companies package various catastrophic risks and some even design products based on specific perils like storm, earthquake and flood.

GIC went through a bad patch in recent times, with claims from this year’s Uttarakhand floods touching Rs 1,500 crore.

The corporation has made underwriting loss of Rs 4,971 crore in 2011-12. It took a Rs 1,956-crore hit from floods in Thailand, Rs 400 crore from Japan’s earthquake and Rs 470 crore from the Christchurch earthquake in New Zealand, prompting it to look at costeffective alternatives.