Even as markets across the segments are eagerly looking for improvement in the global financial crisis conditions, international reinsurance market, which provides vital support to the Indian insurance market, is set to hike its premiums after maintaining soft pricing for the last couple of years.

All major reinsurers including Munich Re, Swiss Re, Gen Re, Scor Re and country?s official reinsurers GIC Re have indicated that the days of soft pricing are over and the Indian general insurers have to pay higher prices to seek reinsurance covers.

Explaining the reasons for hiking their premium though there have been no claims during the last year, global reinsurers have said that the global financial crisis has hit their balance sheets badly as their investment income has dipped and global recession is not augmenting their premiums for their smooth functioning.

The new stand of the reinsurers will have major impacts on large Indian corporate houses, which depend upon reinsurance supports for renewal of their annual covers. The local general insurers that pass on almost 90% of risks to the reinsurers in certain segments charge premium to India Inc on the basis of reinsurance rates.

Mostly, corporates in the area of aviation and energy, marine hull and marine cargo have seen their premiums plummeting for the last three years but have to pay higher premium at the time of their renewal.

Though most of the international insurance renewal takes place in January 1, in India it happens on April 1.

Says Ludger Arnoldussen, member of the Munich Re Board of Management for Asian Operation, ?Financial crisis has sent stock markets plunging around the world and resulted in growing levels of risk aversion.?

?Stringent risk management and transparency are becoming increasingly important. Lower investment returns have placed pressure on primary insurers? capital. Together, with restricted refinancing options on the capital markets, the significance of reinsurance as a direct capital substitute is growing. This has prompted immediate change in the reinsurance industry, with demand swiftly increasing,? he said.

Munich Re expects a significantly higher reinsurance price level and differential terms for the upcoming renewals in January throughout Asia.

This projection is based on the increased cost of capital, growing demand for reinsurance, shrinking capacity of the reinsurance industry in general and the changed risk environment, he explained.

Earlier speaking to FE, Yogesh Lohiya, chairman and managing director, GIC Re had said, ?There are indications that the premiums in certain segment would go up.?

A Swiss Re official also confirmed that the reinsurers have to hike their premiums to protect their balance sheets.

Analysts have pointed out that the January 1, 2009 renewals has confirmed that the financial crisis has effectively precipitated the programmed end of the softening and that its duration will fuel even more material market upturns for reinsurers at the following key renewal dates in 2009.

However, they also point out that the high level of competition will prevent any large escalation of premiums for Indian markets.