Loss-wary GIC Re opts out of a role to insure London Olympics

MUMBAI: GICRe has opted out of a role to insure the London Olympics after posting losses for the first time in its history last year as international business sank due to floods in Thailand and tsunami in Japan, a sign that the state-run insurer would stay away from global events for a few years.

The fact that London suffered a terror attack that killed 52 people the day after it won the bid to host the biggest sporting event on the planet could also have weighed on GIC’s decision to stay away from the consortium led by Munich Re, a top reinsurer in the world.

This could be one of the most expensive insurance business with the games being valued with a protection cover of more than $5 billion. Any calling off of the event itself could lead to the insurers paying 350 million Euros.

“We are taking things on a case-to-case basis,” said AK Roy, chairman and managing director, General Insurance Corporation of India. “If we are not even comfortable with the risk or the pricing, we stay out. This is a cleansing process and will take a year or two to come to normal.”

State-run GIC’s decision could cause a setback to its business, which was benefitting from writing policies in the overseas market. While the decision may appear to be correct in the short term, it could prove to be difficult to get back to the international market.

“Insurers underwrite risk depending upon the geo-political conditions,” said Rahul Agarwal, CEO, Optima Insurance Broker. “They are not influenced by the brand, but go by the pricing. Not participating in global programmes, or in certain countries, because of the past losses looks like a knee-jerk reaction.”

GIC Re, the national reinsurer, had posted a maiden loss of Rs2,469 crore in fiscal 2012 due to unprecedented natural calamities that coincided with the global economic slowdown.

The corporation, which had nearly 44% of its revenues coming from overseas business in 2011-12, could see its premium income shrink for a few years before the domestic business grows to offset the fall.

Its underwriting loss for the last fiscal was at Rs4,971 crore. The floods in Thailand cost it Rs1,956 and the Japanese earthquake cost it Rs400 crore. The Christchurch earthquake in New Zealand cost it Rs470 crore.

Even Munich Re, which is leading the insurance consortium, acknowledges the high risk and believes that financial strength is essential to do that business.
“Guaranteeing this amount of cover requires not just financial strength, but also the necessary expertise to allow the risk to be assessed and managed in the best possible way,” Andrew Duxbury, underwriting manager at Munich Re in London, wrote in a note put up on its website.