19 FINANCEOUTLOOKINDIANOVEMBER, 2025the then holding company. The sudden influx of competition, in the form of new insurance companies and Broking houses, and GIC transforming to GIC Re, a pure Reinsurance company, threatened these established relationships; the ones who remained, expected rate matching from the PSUs without compromising on coverage or reinsurance terms.This competitive landscape led to a decline in the market share of Fire business from 23 percent then, to 7 percent over a decade. Furthermore, this was accompanied by rising claim ratios due to aggressive pricing strategies by the direct players supported by reinsurers who also wanted skin in the game. However, recurring adverse treaty results prompted many reinsurers to introduce stringent conditions or to exit the market. GIC Re, significantly impacted, also introduced conditions over time, keeping in mind their role as the government owned Indian reinsurer, and responsibility to the market as a whole.Today, customers are more informed about the crucial role of reinsurance treaties in providing capacity and maintaining market stability. Improved floor rates mandated by GIC Re for certain industries, have contributed to a gradual recovery, with the share of the fire line of business rising to 9 percent of the GDPI as of March 31, 2024. Major insurance buyers now seek partnership roles in the insurance process, recognizing the importance of data and information to ensure quick claim settlements and resilience in the face of losses, particularly when policies include Business Interruption coverage. This collaborative approach helps businesses recover swiftly and maintain their market presence.Transformation of Reinsurance Over the YearsIn the early days of reinsurance, agreements were often sealed with simple contracts, even if some details remained incomplete. The agreements were often signed with 'TBA' remarks due to the lower volume of business and infrequent natural catastrophes. This meant relatively simple and straightforward reinsurance arrangements, notwithstanding the risk of a loss occurring before the blanks in the contract were filled.Over the past two decades, the landscape has drastically changed with the onset of privatization, and the increasing impact of climate change. The dependence on reinsurance has surged, necessitating more detailed and restrictive treaties. As exposures for insurance companies multiplied, the frequency and severity of natural catastrophes also increased, prompting more elaborate contract wordings and a greater role for brokers. Insurance companies became acutely aware of the risks of inadequate reinsurance protection, and the Regulator too mandated accountability from the Boards of the Insurance companies, regarding their annual Reinsurance Programs.Despite the increased complexity, reinsurance remains abundantly available, with ample capital in both traditional and nontraditional markets like Insurance Linked Securities. Today, reinsurance continues to be structured through treaties for entire portfolio protection and facultative reinsurance for specific, large, and complex risks. Today's insurance companies are more informed, navigating changes UNRAVELING THE NITTY GRITTY OF REINSURANCE: THEN, NOW AND THE FUTURE OUTLOOK
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