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Reinsurance rates to remain flat in 2015, no hardening seen

Reinsurance rates for 2015 are expected to remain flat since no major catastrophic event impacted the books of the companies. Reinsurance and insurance officials are of the view that the Asian market had been almost free of such events, barring the Jammu & Kashmir flash floods and Hudhud cyclone which had a slight impact on the rates.

The Hudhud cyclone that hit Andhra Pradesh and Odisha has led to Rs 3,000-3,200 crore of claims for property and crop damage while the floods in Jammu & Kashmir saw insurers taking a hit of Rs 3,000 crore.

“Though the rates may not go down like 2014, there will not be further hardening,” said the head of foreign markets at a global reinsurance company on the sidelines of an insurance event.

Last year, there was a softening of reinsurance rates in the contracts renewed and sources said that they had come down by 15-20 per cent. This was because of absence of major natural catastrophe events across the world and better numbers reported by the industry. Market expansion is also expected according to players, with the insurance ordinance ruling that foreign reinsurers can open branches in India to offer better services.

Even on the aviation front, while there have been some air accidents and a case of a missing aircraft, reinsurers said that this would not sharply impact pricing. “One or few companies may seem a marginal price correction based on the quantum of aviation insurance risks that they are exposed to. But no major shift would be seen,” said the head of Asian markets at a large reinsurance firm.

Contracts in reinsurance come for renewal on an annual basis. Reinsurance is the insurance taken by insurance companies to mitigate the risks of claims and claim payment brought about by large risks. Here, the reinsurer takes on all or part of the risk covered under a policy of an insurance company in consideration of a premium payment.

The rates of reinsurance are decided not just based on domestic events but also on global events. A single or group of events happening in the particular country may or may not affect the rates, but a large global catastrophe may impact rates since the reinsurer(s) would have an exposure to those risks.

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