As the second largest re-insurer worldwide, with a written re-insurance premium volume of $12 billion in 1997 (1996: $10.6 billion out of a total global direct insurance premium of $2,105.838 billion), Swiss Re has been associated with the Indian re-insurance market for more than seven decades now and is regarded as a major player in re-insurance.

While Rogantini's apprehensions border mainly on what the the new regulatory guidelines will be, his core concern is to continue to do business with India in a liberalised scenario, too. Excerpts from anexclusive interview with The Financial Express:

FE: What do you feel about the pace of reforms in India, especially in the insurance sector?

ER: This is not an issue that I, as a foreigner, can comment upon. All that I can say is that your Government has to know for certain what is in the best interests of the country and its own citizens, for that is what eventually and really matters. As far as we are concerned, India is a country with which we would like very much to be associated.

FE: What has been your association with India like, and how has it evolved over the years?

ER: As re-insurers, we have been associated with India for over 70 years and have emerged as what we would like to think an important player here. So, in effect, our involvement with the industry has seen the vicissitudes of the pre-nationalisation days as well as the days of nationalisation. And now, once again, there is prospective liberalisation. The first re-insurance reaty we concluded in India after nationalisation waswith New India Assurance here in Mumbai.

Apart from our pure re-insurance activities, which is providing insurance protection, we hope we have also been able to give good service in India, in terms of training and seminars/workshops, know-how transfer regarding risk assessment and rating, sharing of our expertise in risk inspections and risk management and devising new policy covers.

Before August 1998, we were operating solely out of our head offices in Zurich and London (life and health division). Incidentally, Swiss Re is the first international re-insurer to have opened a representative office in India. We have been operating both directly and through re-insurance brokers here. Our portfolio here has quite a large exposure to infrastructure such as power plants, petrochemical plants, etc.

We are also active in all classes of business, including aviation and satellite re-insurance. However, the latter segment has cost the industry a lot of money. As far as life business is concerned, we are not onlythe world's largest re-insurers but also the biggest re-insurers for LIC.

FE: What has been your experience as far as re-insurance is concerned after markets like China, Taiwan, Philippines and others opened up?

ER: With regard to the opening up of an insurance market, we should probably distinguish between insurance and re-insurance. Re-insurance has historically been cross border business, allowing insurance companies in a confined doestic market to access the international re-insurance markets. Although the insurance law in China gives priority to domestic insurance and re-insurance companies, foreign re-insurance companies do have access to business from China. There are, however, considerable restrictions concerning local currency due to the non-convertibility of the Chinese currency. For the time being, no licences have been granted to foreign re-insurers.

Taiwanese companies, on the other hand, have always relied heavily on foreign re-insurers; it can no doubt be said that the Taiwanese insuranceindustry would not have survived without the strong support of the international re-insurance market. The negative aspect about this is that such a degree of reliance on a very competitive market--as the global market is--has led to its neglecting some of the fundamental principles of insurance.

FE: How do you find the Indian re-insurance markets as compared to those of more developed countries? Would you say that General Insurance Corporation's increased retention shows a distinct slant towards greater market maturity?

ER: I should definitely think so. The bigger players the world over tend to retain more risks (and consequently greater premiums). In India, insurers know what they want--among other things, they want higher retentions, less outflow of foreign exchange. The re-insurance treaties, structures and capacities are consciously and regularly being adjusted to this end.

Greater retention results in a reduction of the proportional premium volume available for re-insurance, but it also means thatthe companies require more `excess of loss protection', where risk sharing is not in terms of a percentage of the entire risk cover as in proportional re-insurance, but level-wise. In other words, risk is hived off to re-insurers only if losses exceed a certain pre-determined amount.

The Indian re-insurance sector will see more of these in the years to come. All this reflects confidence in one's underwriting capabilities (and to continue making profits)--and shows that the risk-bearing capacity has gone up in India.

FE: But this is in a closed door environment. Can this confidence to retain more be sustained in a regime of competition in direct insurance? After all, GIC subsidiaries also take on facultative insurance (which is re-insurance taken not as part of a treaty but on a case to case basis) and a hit on their profitability will lead to a decrease in our retention capacity rightaway.

ER: It all depends on where the competition will be--whether it will be on price only, or, in terms of service forthe client--or, a combination of both. The problem with any insurance product is that the customer normally sees only the value of the product he has bought (in non-life, it is the indemnification of a loss) when he has a loss. It is at this critical stage that the insured should appreciate other add ons offered by insurers, such as smooth and fast settlement processes and value addition in terms of allied services such as helping the affected party to be back in business as soon as possible, etc.

Needless to say that just taking the price into consideration might not be the correct stand always. Overall, I am confident that after an initial period during which it might not be easy to show profits, conditions will normalise in the medium term. That should ensure good retention powers of the domestic companies.

FE: So, where do the impending changes place re-insurers? Apart from the higher retention factor, there is also the mandatory 20 per cent cession to GIC--a trend in keeping with China, South Korea,Philippines, etc. Also, isn't it quite likely that the new joint ventures may prefer to place risk with re-insurers they are already associated with in other countries?

ER: While we do envisage a growth in the direct insurance market, we perceive the re-insurance potential to be smaller next year. However, as I said earlier, there will be plenty of opportunities once again in the medium term. Its too premature to quantify--one has to await the IRA guidelines. As far as the new companies are concerned, well, we would certainly like to do business with them also, both in life and non-life.

FE: What other changes do you foresee in the new scenario? Will competition and greater tariff de-regulation drive down rates and result in a shrinking of the re-insurance premium volumes?

ER: As of now, nothing can be said for sure. However, increased competition is very likely to result in rate reductions in certain classes of business, but in those areas which have so far been cross-subsidised, an increase in ratesmay be possible. Overall, the rate reductions may outweigh the increases, thus bringing down the re-insurance premium volume available.

Another effect of de-regulation will be that, projects--especially mega projects where one needs the capacities of the international re-insurance market--will get exposed to international trends to an even greater extent than is the case today. This will affect rates too. Areas like the personal lines segment, where we also expect to see substantial growth as also will see new types of covers, would usually not be affected by international trends in the same way (as, in view of the smaller sums assured there is much less need for global re-insurance support).

In this context, it may be worthwhile to say that international re-insurance markets have been very soft for the past few years now, mainly because the booming finanancial markets themselves have allowed very good returns on investments and attracted considerable "innocent" re-insurance capacity. This phase seems tobe over now.

It is, therefore, expected (is this the wishful thinking of a re-insurer?) that sooner or later this will be reflected in re-insurance/insurance terms and conditions which will be more commensurate with the risk for which protection has been granted.

FE: Would not new covers--especially those for project insurance--typically generate more re-insurance business (irrespective of global trends), since there, the tendency to hive off risk would be greater?

ER: To some extent, yes. Much would depend on how big the joint venture partner in the new company is--and most of the names we hear about in India are big ones. Global experience shows that the big players do not need the same type or level of re-insurance protection as smaller players do. Smaller companies might also be more likely to require the know-how, experience and expertise of an international re-insurer--apart from their need for higher re-insurance capacities/ protection--possibly because of a smaller capital base and lesswell-balanced portfolio.

FE: So, which areas are re-insurers likely to take a hard look at after the opening up?

ER: (laughs) If only we could know that in advance. There are too many uncertainties now, and I haven't yet come across the proverbial crystal ball. If I could answer that today, it would make re-insurance easy. What is profitable business for a direct insurance company is not necessarily profitable for the re-insurer. All I can say is that we would try our best to show overall profits in the medium term.

FE: Do you feel a capital requirement of Rs 200 crore--which is the figure doing the rounds now in India--for re-insurers is too high? What are your other concerns?

ER: The figure mentioned by you has to be seen against re-insurance capacity a re-insurer can grant (it is not uncommon for new preojects to have a sum insured of $1 billion). Re-insurance is a global business. Swiss Re underwrites (accepts) risks against its group capital which allow us to support insurance companies withsubstantial amounts.

As a purely academic exercise take this into account: should one have to write against a capital of Rs 200 crore, this would restrict business opportunities.

What is at least equally important as the capital requirements are the solvency margins (relation between premiums and exposure). Swiss Re, with its well-balanced portfolio (both geographically and in terms of lines of business), would not require the same solvency margins as a (re)-insurer with a less well-balanced portfolio.

Another issue in this context is the question of repatriation of premiums. It might not be desirable to invest your money in the same industry or country where you are re-insuring. Imagine a calamity hitting a country where you, as re-insurer, have vast exposures and where you have invested your money.

In such a scenario, the re-insurer would be hit from two different sides: on one side, he is faced with the commitment to honour losses, but on the other, the financial markets where the investments havebeen made has suffered badly and the investments are no longer what they were. A certain flexibility is therefore requested.

Let me take this opportunity to share with you that I feel comfortable about the fact that what we will eventually see from the IRA's office in terms of regulations after the passage of the Bill will allow us to continue our invlovement with the Indian insurance industry just as professionally into the next millennium, too.