GIC Re staff has reasons to oppose merger of national reinsurer with GIPSA

The department of financial services (DFS), in its August 28 notification, has asked GIPSA to include GIC Re and Agriculture Corporation of India (AIC) as its members, which has been severely opposed by employees of GIC Re.

As of now, there are four members of General Insurance Public Sector Association (GIPSA), which include New India Assurance (NIA), Oriental Insurance Company (OIC), National Insurance Company (NIC) and United India Insurance (UII). If these two state-run companies are included, then GIPSA will be having six state-run general insurers, the national reinsurer and national agriculture insurer also under its fold. GIC Officers’ Association (GICOA) has strongly opposed the government’s move. In its letter, dated September 4, it has said that the move would not be in the best interest of the industry and may lead to several challenges due to the significant differences between GIC Re and the existing GIPSA members. It has cited a host of reasons against the proposal.

Talking to Bizz Buzz, Sumit Kumar, general secretary, GICOA, says, “GIC Re operates primarily in the business-to-business (B2B) sector, whereas GIPSA member companies are engaged in business-to-consumer (B2C) operations. The divergent nature of these business practices could lead to misalignment of strategies, and challenges in establishing mutual benefits within the association. GIC Re is the insurer for insurance companies working in various sectors like Life, Non-life and credits, similar to how RBI is the banker to all other banks.”

Another important fact is that DFS is trying to bring Follow-On Public Offer (FPO) soon. Adding or clubbing with the GIPSA members companies would be a serious blow to GIC Re FPO as three of four GIPSA member companies are loss-making units for several years now, he added.

It can be noted that RBI is not a member of IBA (Indian Bank’s Association). This is because the central bank’s B2B and business practices are different from that of banks. One may refer the example of NABARD as well, which is also not a member of IBA due to different business practices and challenges, even though all these entities are owned or administered by the Finance ministry.

GIC Re’s situation is similar to that of RBI and NABARD, and cannot become a member of GIPSA, since business practice, challenges, competition are very different from the GIPSA companies. This raises the question of why it isn't included with the Life Insurance Corporation and ECGC, or alternatively, whether there should be a comprehensive umbrella association encompassing all insurance companies, similar to the structure found in the banking industry.

GIC Re operates within a framework that spans multiple regulatory domains. As a reinsurance entity, GIC Re is obligated to comply with insurance, reinsurance, reinsurance regulations of various countries to accept foreign business and run foreign branches and life insurance regulations. These distinct regulatory frameworks impose unique requirements, mandates, and compliance procedures that are not applicable to the GIPSA member companies. In contrast, GIPSA companies are regulated under insurance regulations for non-life insurance and are governed by the General Insurance Business (Nationalization) Act (GIBNA). This regulatory alignment inherently sets GIPSA companies apart from GIC Re due to the divergent regulatory mandates they follow.

The inclusion of GIC Re within an association that primarily consists of GIPSA companies would potentially introduce complexity and challenges in terms of regulatory alignment. The set of regulations that GIC Re must adhere to, as opposed to the regulations governing GIPSA companies, could lead to confusion, misalignment, and operational hurdles within the association.

The competition faced by GIC Re is distinct from that of the GIPSA member companies. GIC Re competes on a global scale with renowned reinsurers such as Swiss Re, Munich Re, and others. On the other hand, GIPSA member companies compete domestically with non-life insurance entities. This fundamental difference in competition could undermine the collaborative spirit of the association.

Further, the four PSGICs are clients for GIC Re and being on the same forum would somewhere or the other result in conflict of organisation's functionality or conflict of interest and would not result in healthy Insurance market atmosphere.

GIC Re's involvement in providing reinsurance solutions to varied sectors, starts from non-life, life, specialised sectors like health, credit risk, cyber, among others. We are the reinsurer to all non-life companies, life insurance companies and specialised sectors companies like ECGC, spread across the world. So why are they being forced to take membership of GIPSA, which caters only to the non-life sector.

Differing nature of businesses served could result in complications within the association, making it difficult to establish a cohesive framework. GIC Re being a member of GIPSA would be a regressive decision. GIC Re, based in Mumbai, operates with a relatively small employee base, given its distinct business model. In contrast, GIPSA members have a widespread presence across India. These geographical and organizational disparities could further complicate the functioning and decision-making processes of the association.

Negative sentiment in the stock market related to the inclusion of GIC Re in GIPSA is a common reaction when market participants perceive risks or uncertainties associated with a particular decision. In this case, the concerns appear to be based on the financial performance of GIPSA member companies and their non-listed status on the stock exchange.

Investors often consider the financial health and performance of associated entities when evaluating a company's prospects. If GIC Re is seen as closely aligned with underperforming insurers, it could raise concerns about its own risk exposure. Non-listed companies typically have less public financial disclosure compared to publicly listed ones. Investors may perceive this lack of transparency as a risk factor, as they have limited access to financial information as regards GIPSA member companies.

The prevailing condition of GIPSA is disconcerting, majority of its members, which means three of four incurring losses and displaying a worrisome financial state for last many years. The efficacy of GIPSA in realizing its intended objectives comes under scrutiny, given the substantial losses incurred by the majority of its constituents. A re-evaluation of GIPSA's role and efficacy is imperative.

GIC Re is giving record profits and humongous amounts of dividends to Govt of India from the day it become a reinsurer and it was only possible because of standalone business decisions and strategies. In light of these concerns, GICOA has strongly urged the government to reconsider the proposal to include GIC Re in GIPSA.