India’s GIC Re ‘making progress’ on potential catastrophe bond issue

According to a representative of India’s national reinsurance company, General Insurance Corporation of India or GIC Re, the company is making progress in its efforts to become the first Indian catastrophe bond sponsor.

Artemis spoke to a representative of the company this morning who confirmed that the project, assessing the possibility of issuing catastrophe bonds as a component of GIC Re’s retrocessional reinsurance program, is ongoing and said that progress is being made.

The reinsurers catastrophe bond plans were covered again this morning in India’s Economic Times newspaper here, so we felt it would be worth trying to clarify some points on the mooted cat bond issuance.

The GIC Re representative said that the firm is looking at any and all venues for the issuance of a cat bond, so not necessarily looking to issue a cat bond in India and under the Indian regulatory environment, something that had been suggested previously.

The Economic Times article says that GIC Re will speak with IRDA, the countries Insurance Regulatory and Development Authority, regarding the catastrophe bond. The article suggests that Indian investors may get a chance to invest in any GIC Re cat bond, although the company representative told Artemis that it was considering all options for issuance and sale of any cat bond transaction.

GIC Re approved the use of catastrophe bonds as part of its risk transfer program last year. Since then it has continued to explore and pursue the opportunity to use cat bonds as a source of risk capital for perils such as earthquake, flood or tsunami.

This project could run for some time, with a number of issues such as availability of historical loss data, the quality of risk models available and concerns of moral hazard in a still developing economy perhaps making an indemnity transaction difficult to sell. However parametric triggers could be a possibility, as could GIC Re using cat bonds to help it expand overseas, so issuing a deal covering risks not in India at all.

The project to look at cat bonds is clearly still running at GIC Re and the company seems set on becoming the first issuer from India. It will be a very positive step for the cat bond market if such a transaction can be issued, marking yet another milestone in the cat bond markets development.