An Examination of Reinsurer Solvency - With Special Focus on Indias GIC Re

Abstract

Reinsurance mechanism helps insurance companies to manage their risks by sharing losses to the extent of a reinsured portfolio and helping them gain resilience. The element of reinsurance is critical not only for insurance companies for managing risks but also for the economy due to interconnectedness of the sector with the larger economy. Reinsurance thus becomes an important backbone of the industry. A reinsurer should therefore be of a sound financial health to offer such kind of protection and resilience (absorbing of losses) to ceding or primary insurance companies. This paper tries to examine the financial soundness of India’s public sector reinsurer, the GIC Re, by studying some important variables that affect and impact its solvency. Analysing the data with the autoregressive distributed lag (ARDL) and bounds testing techniques model, the study finds that the combined ratio, operating profit, and liquidity are significant variables that have an impact on its solvency, thus providing important pointers for the reinsurance landscape in an emerging economic scenario.

Keywords: Solvency, Reinsurance, Risk, Insurance, Time Series

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